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What's in Store for Barclays (BCS) This Earnings Season?

Barclays BCS is slated to announce fourth-quarter and 2017 results on Feb 22, before the opening bell. For the to-be-reported quarter, it is expected to record year-over-year growth in revenues and earnings.

Encouraging investment banking performance, lower costs and a decline in credit impairment charges were the primary reasons for the improvement in last quarter’s results. However, fall in trading revenues and lower net interest income were the undermining factors.

Activities of the company in the fourth quarter failed to win analysts’ confidence. As a result, the Zacks Consensus Estimate for earnings of 13 cents remained stable over the last seven days. Nevertheless, the figure reflects significant improvement on a year-over-year basis.

The Zacks Consensus Estimate for sales is $6.6 billion for the to-be-reported quarter. The top line is expected to witness a rise of 6% from the prior-year quarter.

Looking at the price performance, Barclays lost 0.9% in 2017, significantly underperforming the 22.4% rally of its industry.



Factors at Play

Investment banking to marginally support revenues: Driven by improving market conditions and potential of continued rise in interest rates in the future, the quarter witnessed a rise in debt issuance. Also, the quarter is likely to record a slight improvement in equity issuance despite seasonality. Strong rally in the equity markets worldwide might have propelled IPOs and follow-on offerings. So, both debt and equity underwriting fees for Barclays are projected to rise in the to-be-reported quarter.

Further, with the overall improvement in the global M&A scenario, Barclays is expected to generate decent advisory fees.

Rise in loan demand to support interest income: While a low interest rate environment across several major economies continue hampering interest income growth, increase in loan demand is likely to offset it to some extent.

Cost saving efforts to support results: Barclays has been on a streamlining spree since the second half of 2016. It announced divestures of several non-core businesses. These initiatives are expected to improve the bank’s operating efficiency and trim costs. Nevertheless, legal and other regulatory expenses are bound to adversely affect its bottom line.

In fact, management expects operating expenses (excluding litigation and conduct charges) to be in the range of £14.2-£14.3 billion in 2017. This is lower than £14.7 billion recorded in 2016.

Trading weakness to hurt revenue growth: During the fourth quarter, trading environment was disappointing as markets experienced low volatility. Barclays’ trading income is likely to face fixed-income and equity trading slump. Further, the fall in trading revenues will mainly be due to comparison with the prior-year quarter that witnessed higher volatility following the U.S. Presidential election results.

Rise in loan impairment charges: Loan impairment charges will continue to trend upward in the quarter as consistent global slowdown has led to deterioration in asset quality.

Impact of U.S. tax reform: Following the passage of the U.S. tax act, Barclays’ executives noted that the corporate tax overhaul will hurt earnings in the fourth quarter. The bank is anticipated to record a one-time charge of £1 billion ($1.3 billion) in the to-be-reported quarter due to the write-down of deferred tax assets.

Now, let’s check what our quantitative model predicts.

According to our quantitative model, it cannot be conclusively predicted if Barclays will be able to beat the Zacks Consensus Estimate this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for increasing 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.

Zacks ESP: The Earnings ESP for Barclays is 0.00%.

Zacks Rank: Barclays has a Zacks Rank #3, which increases the predictive power of ESP. However, we also need a positive ESP to be confident of an earnings beat.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Schedule of Other Foreign Banks

Canadian Imperial Bank of Commerce CM, Royal Bank of Canada RY and The Toronto-Dominion Bank TD are scheduled to announce results on Feb 22, Feb 23 and Mar 1, respectively.

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Barclays PLC (BCS) : Free Stock Analysis Report
 
Toronto Dominion Bank (The) (TD) : Free Stock Analysis Report
 
Canadian Imperial Bank of Commerce (CM) : Free Stock Analysis Report
 
Royal Bank Of Canada (RY) : Free Stock Analysis Report
 
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