Will Santander Consumer (SC) Disappoint in Q4 Earnings?

Santander Consumer USA Holdings Inc.SC is scheduled to announce fourth-quarter and 2016 results on Jan 25, before the market opens.

Last quarter, Santander Consumer USA's earnings surpassed the Zacks Consensus Estimate, driven by rise in total finance and other interest income and lower provisions. However, an increase in operating expenses remained a headwind.

The earnings beat and the Trump-induced rally led to improved price performance for Santander Consumer USA. For the three-months ended Dec 31, 2016, the company's shares gained 8.5%.

Earnings Whispers

Let's check what our quantitative model indicates.

The possibility of Santander Consumer USA beating the Zacks Consensus Estimate in the fourth quarter is low. This is because the stock has the right combination of the two key ingredients - positive Earnings ESP and a Zacks Rank #3 (Hold) or better - for increasing the chances of an earnings surprise.

You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks ESP: The Earnings ESP for Santander Consumer USA is -11.77%. This is because the Most Accurate estimate of 30 cents is below the Zacks Consensus Estimate of 34 cents.

Zacks Rank: Santander Consumer USA carries a Zacks Rank #4 (Sell).

As it is we caution investors against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Further, the stock has witnessed three downward revisions in earnings estimates (versus no upward revision), over the last 30 days. Also, the Zacks Consensus Estimate has declined 5.6%, over the last seven days.

Factors to Impact

Rise operating expenses is expected to act as a major headwind for Santander Consumer USA in the quarter. Further, regulatory and compliance costs are anticipated to be on the higher side. Also, compensation expenses will rise as the company continues its recruitment drive. Hence, rising expenses will somewhat dampen Santander Consumer USA's bottom-line growth.

Further, as Santander Consumer USA will likely experience an increase in auto-loan origination, provision for loan losses too will trend higher.

On the revenue front, Santander Consumer USA is expected to witness an uptrend. As the company largely provides auto loans, its financial performance is directly related to the overall health of the auto sector.

Last year was a good year for to auto industry, with sales hitting all time high. So, with continued fall in fuel prices and strong macroeconomic factors demand for vehicles continued to rise. Hence, Santander Consumer USA should continue to witness an overall rise in revenues.

Stocks that Warrant a Look

Here are a few finance stocks you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:

SEI Investments Co. SEIC is scheduled to report results on Jan 25. The company has an Earnings ESP of +6.00% and carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Raymond James Financial, Inc. RJF has an Earnings ESP of +1.00% and carries a Zacks Rank #2. The company is slated to release results on Jan 25.

T. Rowe Price Group, Inc. TROW has an Earnings ESP of +2.16% and carries a Zacks Rank #3. It is scheduled to report results on Jan 26.

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Raymond James Financial Inc. (RJF): Free Stock Analysis Report

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SEI Investments Co. (SEIC): Free Stock Analysis Report

Santander Consumer USA Holdings Inc. (SC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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