With fourth-quarter 2016 earnings in full swing, investors are keeping a close eye on the performance of the companies. Several companies have come up with better-than-expected results amid an improving environment with stabilizing oil prices and continued recovery of the U.S. economy.
Underlying loan demand remained healthy during the fourth quarter, with overall moderate growth in loans including commercial and industrial and commercial real estate loans.
Also, demand for several consumer categories including card, auto as well as student loans remained decent. The improving housing sector, declining unemployment and low default rates should have aided performance of consumer finance companies.
Per our latest Earnings Preview article, overall earnings for the Finance sector in the fourth quarter are expected to be up 20.1% year over year. Also, revenues are expected to increase 2.1%. Notably, during the third quarter, the sector witnessed a 12.3% increase in earnings while revenues improved 4.9%.
Our quantitative model offers some insights into stocks that are about to report their earnings. Per the model, in order to be confident of an earnings beat, a stock needs to have the right combination of the two key criteria, a favorable Zacks Rank – Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) – and a positive Earnings ESP.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP is our proprietary methodology for identifying stocks that have high chances of surprising in their upcoming earnings announcement. It shows the percentage of difference between the Most Accurate estimate and the Zacks Consensus Estimate. Our research shows that for stocks with this combination, the chance of a positive earnings surprise is as high as 70%.
Let’s have a look at what’s in store for the following firms, releasing their fourth-quarter results on Jan 24.
Navient Corporation NAVI: Quarterly results of Navient, which services over $300 billion in student loans for more than 12 million customers, should benefit from continued new acquisitions of student loan portfolios, both Federally Guaranteed Student Loans (FFELP) as well as Private Education Loan. Also, the company’s efforts to grow asset recovery revenues should boost the top line to some extent.
Notably, the company is expected to incur an additional $7 million of one-time operating expenses in the quarter due to shift of $2.7 billion FFELP loans to its servicing platform. (Read more: Navient to Report Q4 Earnings: What's in the Cards?)
However , with a Zacks Rank #4 (Sell) and Earnings ESP of -2.27%, the chances of Navient beating the Zacks Consensus Estimate this time around are quite low. Notably, the Zacks Consensus Estimate of 44 cents reflects a year-over-year decline of 9%.
The company has reported an average negative earnings surprise of 0.5%, over the trailing four quarters.
Discover Financial Services DFS: With a Zacks Rank #3 and Earnings ESP of +0.43%, the chances of Discover Financial beating the Zacks Consensus Estimate this time are high. Notably, the Zacks Consensus Estimate of $1.38 reflects a year-over-year increase of 21.2%.