People's United (PBCT) to Report Q1 Earnings: A Beat in Store?

People's United Financial, Inc. PBCT is scheduled to report first-quarter 2019 results on Apr 17. Both revenues and earnings are anticipated to reflect year-over-year improvement.

Before we discuss the factors that could influence the results, let’s take a look at how the company performed in the last reported quarter.

Driven by improvement in loans and deposit balances, along with rising rates and higher fee income, People's United delivered a positive earnings surprise of 5.88% in fourth-quarter 2018. However, elevated expenses and provisions were major drags.

Notably, People's United delivered positive earnings surprise in one occasion and in-line results in two out of the trailing four quarters, the average beat being 0.74%.
 

People's United Financial, Inc. Price and EPS Surprise

People's United Financial, Inc. Price and EPS Surprise | People's United Financial, Inc. Quote

Regarding the stock’s performance, shares of the company jumped 13.9% for the three-month period ended Mar 31, 2019. Will the upcoming earnings release give a boost to People's United stock? This depends largely on whether or not the firm is able to post a beat in the first quarter. Notably, our quantitative model shows that People's United is likely to beat on earnings this season. Here’s why:

The company has the combination of the two key ingredients for a possible earnings beat — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold).

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

Earnings ESP: The Earnings ESP for the stock is currently pegged at +2.59%. This is a very significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of People's United’s Zacks Rank #3 and a positive ESP makes us confident of an earnings beat.  

Conversely, we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement.

Factors to Influence Q1 Results

Loan Growth: A modest increase in lending — mainly in the areas of commercial and industrial, commercial real estate and consumer — is expected to boost net interest income (NII). However, weakness in revolving home equity loans (due to slowdown in originations as well as refinancing activities) will partially offset this.

Growth in loan portfolio is expected in the range of 3% to 5% for 2019, the impact of which will likely be reflected in the Jan-Mar quarter as well. This goal excludes the transactional portion of the New York multifamily portfolio, which is in runoff mode. Management expects the runoff in the transactional New York multifamily portfolio to be $400-$500 million. Deposits are projected to be up 3-5%.

Modest Rise in Net Interest Income (NII): Given the influence of rise in interest rates, People's United is anticipated to record an increase in NII. Notably, management’s projections of 2019 NII’s growth in the range of 10-12% is likely to show impact in the quarter to be reported as well. This is based on the expectation of net interest margin (NIM) of 3.15-3.25%, on assumption of no hikes in fed funds during the year. Notably, flattening, and sometimes inversion of the yield curve, during the Mar-end quarter might have an unfavorable impact on net interest margin.

Fee Income to Escalate: On strong retail banking, fee income might escalate for the bank. Additionally, the company projects non-interest income to be up 2-4% in 2019, the impact of which will likely be reflected in the Jan-Mar period.

Increase in Expenses: Despite undertaking a number of expense-saving initiatives, People’s United’s operating expenses have witnessed an elevated level. Though the company is focused on optimizing its branch network and has initiated installation of technology to improve efficiencies and reduce costs, escalating expense levels are likely to curb bottom-line expansion.

Other Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Northern Trust Corporation NTRS is set to report first-quarter earnings on Apr 23. The company has an Earnings ESP of +0.57% and carries a Zacks Rank of 3, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for BankUnited, Inc. BKU is +1.89% and it carries a Zacks Rank of 3, currently. The company is set to report quarterly numbers on Apr 24.

BB&T Corporation BBT has an Earnings ESP of +0.32% and currently carries a Zacks Rank of 3. It is slated to release quarterly figures on Apr 18.

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