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Fee Income, Leerink to Aid SVB Financial (SIVB) Q2 Earnings

Zacks Equity Research

SVB Financial Group SIVB is slated to announce second-quarter 2019 results on Jul 25, after market close. Its revenues and earnings are projected to grow year over year.

In the last reported quarter, the company’s earnings outpaced the Zacks Consensus Estimate. Higher revenues, decline in credit costs and loan growth aided the results. However, higher non-interest expenses acted as a headwind.

The company boasts an impressive earnings surprise history. Its earnings surpassed the consensus estimate in each of the trailing four quarters, the average beat being 13.1%.

SVB Financial Group Price and EPS Surprise

 

SVB Financial Group Price and EPS Surprise
SVB Financial Group Price and EPS Surprise

SVB Financial Group price-eps-surprise | SVB Financial Group Quote

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The Zacks Consensus Estimate for earnings for the second quarter has remained unchanged at $4.98 over the past 30 days. The figure indicates growth of 12.7% from the year-ago reported figure. Further, the consensus estimate for sales of $787.4 million implies rise of 19.5%.

Factors at Play

Net interest income (NII) to improve marginally: Per the Fed’s latest data, commercial loans (constituting a major part of SVB Financial’s loan portfolio) and real estate loans recorded soft growth during the second quarter. This, along with flattening of yield curve, and the rise in deposit betas are expected to hamper NII growth.

Nonetheless, benefit from the Leerink acquisition (closed in January 2019) will support the bank’s NII. The Zacks Consensus Estimate for average interest earning assets of $57.1 billion represents rise of 9.1% year over year. Thus, SVB Financial is expected to witness a modest increase in NII in the to-be-reported quarter.

Fee income to slightly rise: Supported by increase in credit card-related consumer loans during the second quarter, the company’s credit card fees are expected to rise. However, increased competition and rise in deposit costs will have an adverse impact on the company’s service charge on deposits. So, SVB Financial’s non-interest income is likely to witness a marginal improvement.

Expenses to rise: SVB Financial’s adjusted non-interest expenses are expected to increase in the first quarter due to its continued spending on technology systems overhaul and investment in franchise. Further, the acquisition of Leerink will lead to a rise in operating expenses too.

Asset quality not likely to lend much support: The Zacks Consensus Estimate for allowance for loan losses of $311 million suggests an increase of 8.4% from the year-ago reported figure. Also, the consensus estimate for non-performing assets of $140 million indicates a rise of 12%.

Earnings Whispers

Per our quantitative model, the chances of SVB Financial beating the Zacks Consensus Estimate in the second quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

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 SVB Financial is +1.61%.

Zacks Rank: SVB Financial has a Zacks Rank #3, which further increases the predictive power of ESP.

Other Stocks to Consider

Here are a few other finance sector stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat in the upcoming release.

T. Rowe Price Group, Inc. TROW has an Earnings ESP of +0.33% and sports a Zacks Rank #1 (Strong Buy) at present. The company is scheduled to release results on Jul 24.

The Earnings ESP for BOK Financial Corporation BOKF is +1.16% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 24.

Ares Capital Corporation ARCC is slated to release results on Jul 30. It presently has an Earnings ESP of +1.02% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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