5 Bank Stocks Set To Beat On Q1 Earnings As Economy Rebounds

Additionally, similar to the second half of 2020, deal-making continued at a faster pace in the quarter on the back of global roll-out of COVID-19 vaccines, a brighter macroeconomic outlook, and lower interest rates. Though the deal volume didn’t show much improvement, the total value of pending/completed transactions grew drastically. So, advisory fees are expected to have risen and offered much support to banks’ revenues this time.

On the cost front, with the majority of employees still working from home, banks are expected to have recorded a fall in overhead expenses in the first quarter. Yet, with the increase in the use of virtual mediums for communication and other business activities, technology costs are expected to have risen to some extent. Also, banks have been undertaking several business restructuring initiatives, which are likely to have led to higher costs.

Now coming to credit costs, with the economy gradually rebounding from the coronavirus-induced mayhem and uncertainty, banks started releasing reserves that were set aside in the early part of 2020. The trend is likely to have continued in the first quarter of 2021.

Q1 Earnings Expectations & Performance So Far

The Zacks Finance sector’s (of which banks is a major part) earnings are projected to jump 89.7% year over year in the first quarter. This is compares favorably with 13.6% growth recorded in fourth-quarter 2020.

To date, we have first-quarter numbers from more than 41% of the sector’s total market capitalization in the S&P 500 Index and a large part of the remainder are slated to announce results later this week and next week. Total earnings for these finance companies are up 174.5% year over year on 14.1% growth in revenues.

How to Pick Potential Outperformers?

With the performance of bank stocks likely to be impressive this time, shortlisting those having the potential to beat earnings estimates can be daunting. One way to do it is by picking stocks that have the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold).

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