Zions Bancorporation (ZION Quick QuoteZION - Free Report) is slated to report third-quarter 2016 results on Monday, Oct 24, after the market closes.

Last quarter, Zions’ earnings beat the Zacks Consensus Estimate, mainly driven by higher revenues and lower expenses. These were partly offset by a rise in provision for loan losses.

This earnings beat translated into improved share price movement for Zions. For the three month-period ended Sep 30, 2016, the stock was up nearly 24.5%. Further, Zions has a decent surprise history, as indicated from the chart below:

ZIONS BANCORP Price and EPS Surprise

 

ZIONS BANCORP Price and EPS Surprise | ZIONS BANCORP Quote

Earnings Whispers

Will improving loan demand support Zions’ top line this earnings season? Or will rising provisions hurt its financials again? Let’s check what our model indicates:

Our proven model does not conclusively show that Zions is likely to beat earnings in the third quarter. Note that a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) to have a significantly higher chance of beating earnings. However, this is not the case as elaborated below:

Zacks ESP: The Earnings ESP for Zions is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 50 cents.

Zacks Rank: Zions carries a Zacks Rank #3. This increases the predictive power of ESP, but we need to have positive Earnings ESP to be sure of earnings beat.

Additionally, Zions’ activities during the quarter were inadequate to win analysts' confidence. Over the last seven days, the Zacks Consensus Estimate remained stable.

Factors to Impact Q3 Results

Revenue Growth to Continue: Management projects net interest income (NII) to trend up, driven by reduction in interest expenses. Also, loan growth, attributable to rise in residential mortgage, and non-energy commercial and industrial loans as well as modest improvement in construction and land development will support the company’s NII during the quarter.

Additionally, the company projects a moderate rise in non-interest income (excluding dividends and securities gains/losses) during the quarter. Therefore, overall revenues are expected to increase during the quarter.

Stable Expense Base: Zions projects non-interest expenses to trend lower year over year, driven by benefits from business simplification. Nonetheless, as the company continues to invest in the franchise, overall operating expenses should remain stable during the quarter.

Provisions to Remain Elevated: Zions’ oil and gas-related exposure (10.3% of net loans as of Jun 30, 2016) remains a matter of concern, despite a rebound in oil prices. So, provisions should remain elevated in the quarter, given overall increase in loan balance. Management expects provision to be similar to the second-quarter 2016 level of $35 million, on the assumption of no further deterioration in market conditions.

Stocks That Warrant a Look

You may want to consider a few finance stocks, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming announcements.

State Street Corporation (STT Quick QuoteSTT - Free Report) is scheduled to report results on Oct 26. The company has an Earnings ESP of +0.80% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Raymond James Financial, Inc. (RJF Quick QuoteRJF - Free Report) has an Earnings ESP of +2.04% and carries a Zacks Rank #2. The company is slated to release results on Oct 26.

Lazard Ltd. (LAZ Quick QuoteLAZ - Free Report) , another Zacks Rank #2 stock, has an Earnings ESP of +3.90%. It is scheduled to report results on Oct 27.

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