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Will Macro Issues Hurt U.S. Bancorp (USB) Q2 Earnings?
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U.S. Bancorp (USB - Free Report) is scheduled to report its second-quarter 2016 results on Jul 15, before the opening bell.
This Minnesota-based banking giant delivered a 1.3% positive earnings surprise in first-quarter 2016. Earnings were however in line with the prior-year quarter. Organic growth was driven by higher revenues along with elevated average loans and deposits. Steady capital deployment activities displayed a strong capital position. However, an increase in expenses and provisions were a major drag.
U.S. Bancorp has a decent surprise history, as evident from the chart below:
A number of headwinds experienced in the past quarter continued during the second quarter including heightened market volatility, decline in commodity prices, weak emerging markets, restricted business and consumer spending, rate hike uncertainty and volatile energy prices. Further, Brexit added to the woes.
Despite the rise in loan demand, the top line will continue to remain under pressure due to the impact of the low rate environment on net interest income. Management expects net interest margin to remain stable in second-quarter 2016, while net interest income is likely to increase slightly. Further, loan growth is expected to be around 1.5%.
The Brexit vote has upset the stock market and has led to a decline in mortgage rates. Though lower mortgage rates have affected retirement accounts, they are beneficial for people seeking to refinance their home loans. Low rates are expected to encourage higher real estate activity and lending. Notably, management expects mortgage fees to increase by 10% to 20%, based on seasonal higher application volume in second-quarter 2016.
Non-interest income is likely to be up due to a rise in trading and investment banking revenues.
Further, management expects efficiency ratio to decline slightly in the second quarter. Efficiency ratio is anticipated to trend downward and remain in the low 50% range, going forward, owing to cautious expense management in spite of the continued investments in business expansion initiatives. However, management anticipates non-interest expense to be higher in the second quarter, driven by expected seasonality and elevated expenses associated with brand positioning launched in the first quarter.
Given the mix and overall quality of the company’s portfolio, total provisions and net charge-offs are expected to remain relatively stable in the second-quarter 2016. Given an uncertain outlook for commodity prices in the near term and the potential continued decline in energy prices, the company is likely to witness stress within its energy and metals-related loan portfolios in 2016.
Activities of U.S. Bancorp during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 81 cents per share over the last seven days.
Earnings Whispers
Our proven model shows that U.S. Bancorp is likely to miss the Zacks Consensus Estimate in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP for U.S. Bancorp is -1.24%. This is because the Most Accurate estimate of 80 cents lags the Zacks Consensus Estimate by a penny.
Zacks Rank: U.S. Bancorp’s Zacks Rank #4 (Sell) further reduces the predictive power of the ESP.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Comerica Incorporated (CMA - Free Report) has an earnings ESP of +1.47% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 19.
The earnings ESP for Regions Financial Corporation (RF - Free Report) is +5.00% and it carries a Zacks Rank #3. The company is expected to release its second-quarter results on Jul 19.
Federated Investors, Inc. has an earnings ESP of +2.13% and carries a Zacks Rank #3. It is slated to report its second-quarter results on Jul 28.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>
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Will Macro Issues Hurt U.S. Bancorp (USB) Q2 Earnings?
U.S. Bancorp (USB - Free Report) is scheduled to report its second-quarter 2016 results on Jul 15, before the opening bell.
This Minnesota-based banking giant delivered a 1.3% positive earnings surprise in first-quarter 2016. Earnings were however in line with the prior-year quarter. Organic growth was driven by higher revenues along with elevated average loans and deposits. Steady capital deployment activities displayed a strong capital position. However, an increase in expenses and provisions were a major drag.
U.S. Bancorp has a decent surprise history, as evident from the chart below:
US BANCORP Price and EPS Surprise
US BANCORP Price and EPS Surprise | US BANCORP Quote
Factors to Influence Q2 Results
A number of headwinds experienced in the past quarter continued during the second quarter including heightened market volatility, decline in commodity prices, weak emerging markets, restricted business and consumer spending, rate hike uncertainty and volatile energy prices. Further, Brexit added to the woes.
Despite the rise in loan demand, the top line will continue to remain under pressure due to the impact of the low rate environment on net interest income. Management expects net interest margin to remain stable in second-quarter 2016, while net interest income is likely to increase slightly. Further, loan growth is expected to be around 1.5%.
The Brexit vote has upset the stock market and has led to a decline in mortgage rates. Though lower mortgage rates have affected retirement accounts, they are beneficial for people seeking to refinance their home loans. Low rates are expected to encourage higher real estate activity and lending. Notably, management expects mortgage fees to increase by 10% to 20%, based on seasonal higher application volume in second-quarter 2016.
Non-interest income is likely to be up due to a rise in trading and investment banking revenues.
Further, management expects efficiency ratio to decline slightly in the second quarter. Efficiency ratio is anticipated to trend downward and remain in the low 50% range, going forward, owing to cautious expense management in spite of the continued investments in business expansion initiatives. However, management anticipates non-interest expense to be higher in the second quarter, driven by expected seasonality and elevated expenses associated with brand positioning launched in the first quarter.
Given the mix and overall quality of the company’s portfolio, total provisions and net charge-offs are expected to remain relatively stable in the second-quarter 2016. Given an uncertain outlook for commodity prices in the near term and the potential continued decline in energy prices, the company is likely to witness stress within its energy and metals-related loan portfolios in 2016.
Activities of U.S. Bancorp during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 81 cents per share over the last seven days.
Earnings Whispers
Our proven model shows that U.S. Bancorp is likely to miss the Zacks Consensus Estimate in the second quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Earnings ESP for U.S. Bancorp is -1.24%. This is because the Most Accurate estimate of 80 cents lags the Zacks Consensus Estimate by a penny.
Zacks Rank: U.S. Bancorp’s Zacks Rank #4 (Sell) further reduces the predictive power of the ESP.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Comerica Incorporated (CMA - Free Report) has an earnings ESP of +1.47% and carries a Zacks Rank #3. It is scheduled to report its second-quarter results on Jul 19.
The earnings ESP for Regions Financial Corporation (RF - Free Report) is +5.00% and it carries a Zacks Rank #3. The company is expected to release its second-quarter results on Jul 19.
Federated Investors, Inc. has an earnings ESP of +2.13% and carries a Zacks Rank #3. It is slated to report its second-quarter results on Jul 28.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>