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Solid Fee Income to Support U.S. Bancorp's (USB) Q4 Earnings

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U.S. Bancorp (USB - Free Report) is scheduled to report fourth-quarter 2020 results on Jan 20, before the opening bell. The bank’s revenues are likely to display year-over-year growth, while earnings might reflect a decline.

Before we look at factors that might have impacted fourth-quarter earnings, let’s take a look at how the company performed in the past quarters.

Notably, U.S. Bancorp boasts an impressive earnings surprise history. It surpassed estimates in three of the trailing four quarters and met in the other, the average surprise being 18.5%.

 

U.S. Bancorp Price and EPS Surprise U.S. Bancorp Price and EPS Surprise

U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote

 

 

Key Factors at Play

Low Net Interest Income (NII): The overall lending scenario was soft during the October-December quarter, with commercial real estate and consumer loan portfolios having offered some support. Conversely, weakness in revolving home equity and commercial and industrial activities are expected to have offset growth. Low deposit costs might have been an offsetting factor for margins.

With the interest rates near-zero level, U.S. Bancorp’s net interest margin and NII are likely to have been adversely impacted.

The Zacks Consensus Estimate of $490.4 billion for the quarterly average interest earning assets indicates an 11.5% year-over-year improvement, while the NII will likely decline slightly to $3.2 billion. The company projects fully taxable equivalent net interest income to have remained relatively flat or declined slightly in the fourth quarter on a sequential basis.

Higher Mortgage Banking Fees: The historically-low mortgage rates continued to spur demand for new mortgages. As the stay-at-home orders were lifted and economy gained traction during the December-end quarter, a substantial rise in originations was witnessed as prospective home-buyers entered the housing market again to take advantage of the low rates.

Further, the mortgage-lending business got a boost from higher refinancing activities. These factors are anticipated to have supported U.S. Bancorp’s mortgage banking fees in the to-be-reported quarter. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $449 billion, suggesting an 84% surge from the year-ago reported number.

Steady Non-Interest Revenues: Per the Fed’s latest data, deposits reflected improvement in the October-December period, which is likely to have resulted in higher revenues from service charges on deposits. In addition, trust income is likely to have aided the company on strong markets.

Also, market volatility due to the coronavirus-related concerns prevailed during the quarter in discussion. Thus, driven by a spike in volatility and higher client activities, the company’s trading business is likely to have received a substantial boost. Amid near-zero interest rates and the Federal Reserve’s bond-purchase program, bond issuance volumes were robust, as companies took this as an opportunity to solidify balance sheets. Thus, the Zacks Consensus Estimate for U.S. Bancorp's commercial products revenue calls for 23% year-over-year growth.

However, card fees might have been affected by lower consumer spending on a high unemployment level during the fourth quarter and uncertainty surrounding the new stimulus package. The consensus estimate for credit and debit card fees of $371 million indicates a 1.9% decline from the prior-year quarter’s reported number.

Furthermore, merchant processing fees is expected to have declined during the fourth quarter on lower sales volume worldwide due to the continued impact of the pandemic on consumer and business spending even though it improved to some extent. The consensus estimate of $361 million for the same indicates an 11.7% fall from the prior-year period.

The Zacks Consensus Estimate for non-interest revenues is pinned at $2.59 billion, suggesting a 6.1% rise from the year-ago quarter’s reported number.

Higher Expenses: While the absence of considerable legal expenses is encouraging, increased investments in technology to improve digital offerings might have moderately raised costs during the quarter under discussion.

Management projects non-interest expenses to have been relatively stable in the fourth quarter of 2020 compared with the third.

Let’s have a look at what our quantitative model predicts:

U.S. Bancorp has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — 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.

Earnings ESP: The Earnings ESP for U.S. Bancorp is +0.44%.

Zacks Rank: U.S. Bancorp currently carries a Zacks Rank of 3, which increases the predictive power of ESP.

The bank’s activities in the to-be-reported quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for quarterly earnings has been revised upward in the last 30 days. Nevertheless, earnings might display a year-over-year fall of 12%. Yet, the Zacks Consensus Estimate of $5.8 billion for quarterly sales calls for a 2.8% increase from the prior-year quarter.

 

U.S. Bancorp Price and EPS Surprise 

U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote

Other Banks Worth a Look

Here are a few other bank stocks that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this time around:

The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +4.5% and the stock sports a Zacks Rank of 1 (Strong Buy), at present. The company is slated to report fourth-quarter 2020 numbers on Jan 28.You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Jan 22. The company, which flaunts a Zacks Rank of 1 at present, has an Earnings ESP of +3.39%.

BankUnited, Inc. (BKU - Free Report) is scheduled to announce quarterly results on Jan 21. The company has an Earnings ESP of +2.46% and currently carries a Zacks Rank of 2.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

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