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Will Zions Q3 Earnings Lag on Muted Top-Line Growth?

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Zions BancorporationZION is scheduled to report its third-quarter 2015 results on Oct 19, after the market closes.

Last quarter, earnings per share outpaced the Zacks Consensus Estimate. Results gained from higher net interest income (NII) as well as stable expense level, partially offset by higher provisions.

Zions recorded an earnings beat in two of the trailing four quarters with an average negative surprise of 5.98%.

Is Zions likely to miss on earnings this quarter? Let's see how things have shaped up for this announcement.

What to Expect?

Though Zions has undertaken corporate restructuring and a number of initiatives to drive revenues and reduce expenses, the company's NII and net interest margin (NIM) continue to be under considerable pressure due to the persistent low interest rate environment, FDIC supported loan and low yield loans.

Zions intends to drive revenues primarily through fee income and loan growth and deploying low-yielding cash into mortgage-backed securities. However, we expect the strain on NII and NIM to persist in the upcoming release with debt reductions easing off the steam to some extent this year.

On the other hand, management expects a marginal rise in NII primarily driven by moderate loan growth and reduction in interest expenses due to debt reduction. This will help support top-line growth in the upcoming release.

On the cost front, management does not expect any further cost control in the quarter. Non-interest expenses are anticipated to remain stable this year. With focus on revamp in technology, improving overall operating efficiency and consolidation of legal charters, Zions expects to maintain expense below $1.60 billion going forward.

Notably, a fall in professional services costs are projected to be offset by higher technology related spending during the year.

Further, the company's improving credit quality will work in its favor. Though provisions are projected to remain positive based on net charge-offs, loan growth and anticipated downgrade of energy-related loan portfolios in the upcoming release, management expects enhanced credit quality, given the improved loan portfolio and overall expected economic recovery. Also, the upgrade of the company's risk management is expected to result in a very low net charge-off ratio relative to the industry and a low non-performing loans ratio.

Zions' activities during the quarter were not adequate to win analysts' confidence. As a result, the Zacks Consensus Estimate remained flat at 42 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Zions is likely to beat the Zacks Consensus Estimate in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Zions is -2.38%. This is because the Most Accurate estimate of 41 cents per share is below the Zacks Consensus Estimate of 42 cents per share.

Zacks Rank: Zions carries a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks That Warrant a Look

Zions is not the only firm looking up this earnings season. We are likely to see earnings beats coming from the following finance stocks as well:

Ally Financial Inc. ALLY has an Earnings ESP of +1.92% and carries a Zacks Rank #2. It is scheduled to report results on Oct 29.

Capital One Financial Corporation COF has an Earnings ESP of +2.60% and a Zacks Rank #3. The company will report results on Oct 22.

The Chubb Corporation CB has an Earnings ESP of +6.28% and a Zacks Rank #2. It is scheduled to report on Oct 20.

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CAPITAL ONE FIN (COF): Free Stock Analysis Report

CHUBB CORP (CB): Free Stock Analysis Report

ZIONS BANCORP (ZION): Free Stock Analysis Report

ALLY FINANCIAL (ALLY): 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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