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U.S. Bancorp (USB) Lowered Outlook Amid Global Turmoil
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At Investors Day conference in New York, U.S. Bancorp (USB - Free Report) lowered its long-term financial targets in the wake of persistent global turmoil and a continued low interest rate environment.
The Chief Executive Officer of U.S. Bancorp, Richard Davis, said, “We see a slow, I’ll say tortured, recovery, and the global instability will probably get a little worse. The banking industry has a long way to go to recover its reputation.”
U.S. Bancorp has based its long-term forecasts on the Federal Reserve raising interest rates by 25 basis points four times through the end of 2018, a steepening yield curve by the beginning of 2018 and gross domestic product growth of 2–3%.
ROE & ROA Outlook Lowered, EPS Growth Unchanged
In the wake of persistent global instability, U.S. Bancorp now targets return on assets (ROA) in the range of 1.35–1.65%, lower than 1.6–1.9% in 2013. The company also cut the return on equity (ROE) target to 13.5–16.5% from 16–19%.
Further, a new long-term target for return on tangible common equity was set in the range of 17.5–20%.
Also, the Minneapolis-based bank dropped its long-term fee income growth projection to a range of 6–8% from 7–9% estimated in 2013. However, the net interest income and revenue growth expectation remained at the 5–7% and 6–8% levels, respectively.
On the cost front, management reiterated its expense growth rate to be in the range of 3–5%. In addition, the bank reiterated its long term target for the efficiency ratio to remain in the low 50s range.
Conversely, the provisions for loan losses are now expected to grow at the rate of 12–18%, instead of 6–8%.
Therefore, given the changes in outlook for several line items, net income is now anticipated to grow at 6–8%, lower than the previous target of 7–9%. Nonetheless, earnings per share growth rate is projected to remain in the 8–10% range.
Segmental Revenue Growth Expectations Decline
U.S. Bancorp lowered its revenue growth projections for its Wholesale Banking unit to 6–8% from 7–9%. The expectations for revenue growth were also lowered for Consumer and Small Business Banking, and Payment Services to 5–7% and 7–9%, from 6–8% and 8–10%, respectively. Nonetheless, revenue growth estimates for the Wealth Management and Securities Services remained stable at 7–9%.
Conclusion
We believe that U.S. Bancorp, with its solid business model, is well poised for future growth. The company’s lucrative core franchise, diverse revenue streams and a strong performance over the past years are impressive. However, stringent regulatory reforms, margin pressure and escalating expenses are the primary hindrances to the company’s profitability.
Currently, U.S. Bancorp carries a Zacks Rank #3 (Hold).
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U.S. Bancorp (USB) Lowered Outlook Amid Global Turmoil
At Investors Day conference in New York, U.S. Bancorp (USB - Free Report) lowered its long-term financial targets in the wake of persistent global turmoil and a continued low interest rate environment.
The Chief Executive Officer of U.S. Bancorp, Richard Davis, said, “We see a slow, I’ll say tortured, recovery, and the global instability will probably get a little worse. The banking industry has a long way to go to recover its reputation.”
U.S. Bancorp has based its long-term forecasts on the Federal Reserve raising interest rates by 25 basis points four times through the end of 2018, a steepening yield curve by the beginning of 2018 and gross domestic product growth of 2–3%.
ROE & ROA Outlook Lowered, EPS Growth Unchanged
In the wake of persistent global instability, U.S. Bancorp now targets return on assets (ROA) in the range of 1.35–1.65%, lower than 1.6–1.9% in 2013. The company also cut the return on equity (ROE) target to 13.5–16.5% from 16–19%.
Further, a new long-term target for return on tangible common equity was set in the range of 17.5–20%.
Also, the Minneapolis-based bank dropped its long-term fee income growth projection to a range of 6–8% from 7–9% estimated in 2013. However, the net interest income and revenue growth expectation remained at the 5–7% and 6–8% levels, respectively.
On the cost front, management reiterated its expense growth rate to be in the range of 3–5%. In addition, the bank reiterated its long term target for the efficiency ratio to remain in the low 50s range.
Conversely, the provisions for loan losses are now expected to grow at the rate of 12–18%, instead of 6–8%.
Therefore, given the changes in outlook for several line items, net income is now anticipated to grow at 6–8%, lower than the previous target of 7–9%. Nonetheless, earnings per share growth rate is projected to remain in the 8–10% range.
Segmental Revenue Growth Expectations Decline
U.S. Bancorp lowered its revenue growth projections for its Wholesale Banking unit to 6–8% from 7–9%. The expectations for revenue growth were also lowered for Consumer and Small Business Banking, and Payment Services to 5–7% and 7–9%, from 6–8% and 8–10%, respectively. Nonetheless, revenue growth estimates for the Wealth Management and Securities Services remained stable at 7–9%.
Conclusion
We believe that U.S. Bancorp, with its solid business model, is well poised for future growth. The company’s lucrative core franchise, diverse revenue streams and a strong performance over the past years are impressive. However, stringent regulatory reforms, margin pressure and escalating expenses are the primary hindrances to the company’s profitability.
Currently, U.S. Bancorp carries a Zacks Rank #3 (Hold).
Stocks that Warrant a Look
Some better-ranked stocks in the finance space include Apollo Global Management, LLC (APO - Free Report) , Meta Financial Group, Inc. (CASH - Free Report) and Comerica Incorporated (CMA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
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Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>