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Fee Income Growth to Aid U.S. Bancorp's (USB) Q1 Earnings

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U.S. Bancorp (USB - Free Report) is scheduled to report first-quarter 2021 results on Apr 15, before the opening bell. While its revenues might have declined year over year, earnings are likely to have improved.

Before we look at the factors that might have impacted first-quarter earnings, let’s take a look at the company’s performance over the last few quarters.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate on higher revenues and deposit growth. However, rise in expenses and elevated provisions were the undermining factors.

Notably, U.S. Bancorp has a decent earnings surprise history. It surpassed estimates in three of the trailing four quarters, the average surprise being 18.5%.

Key Factors to Note

Low Net Interest Income (NII): The overall lending scenario was soft during the January-March quarter, sequentially, with commercial and industrial as well as consumer loan portfolios having offered some support. Conversely, weakness in revolving home equity and residential activities might have offset growth. The primary reason for low loan demand is the sluggish resumption of business activities.

Moreover, interest rates at near-zero level are likely to have hurt U.S. Bancorp’s net interest margin, thereby impacting NII. However, steepening of the yield curve (the difference between short and long-term interest rates) might have offered some support.

The Zacks Consensus Estimate of $498.98 billion for the quarterly average interest earning assets indicates a 12.6% year-over-year improvement, and the estimate for NII suggests a marginal decline to $3.17 billion.

The company projects net interest income to be down in the low-single-digits, partly due to seasonally fewer days, on a sequential basis.Management expects loan balances to have declined during the March-end quarter as PPP loans are forgiven and as corporations continue to use attractive capital markets funding alternatives and their strong cash flow to pay down loans.

Higher Consumer Revenues: Deposits have shown improvement in the quarter, aided by incremental stimulus program, which is likely to have resulted in higher revenues from service charges on deposits.

Further, pick-up in refinancing activities on lower mortgage rates during the quarter are anticipated to have offered support to the company. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $405 billion, suggesting a 64% jump from the year-ago reported number.

Payment Service Revenue Growth: Card fees are likely to have improved on higher consumer spending owing to decreased unemployment level, consumer optimism on new stimulus package as well as extensive vaccination drives. Also, demand for online payment of products and services is expected to have been decent.

The consensus estimates for credit and debit card fees of $339 million calls for a 3.4% rise, year on year.

Rise in Overall Non-Interest Revenues: Continued strength in equity markets, driven by a spike in volatility and higher client activities, is likely to have boosted the company’s trading and trust business. Thus, the Zacks Consensus Estimate for U.S. Bancorp's commercial product revenues indicates 8.1% year-over-year growth.

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

Management expects non-interest expenses to be relatively stable compared with the fourth quarter.

Here is what our quantitative model predicts:

U.S. Bancorp has the right combination of the two key ingredients — a positive Earnings ESP and a 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: Earnings ESP for U.S. Bancorp is +0.71%.

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

The Zacks Consensus Estimate of 92 cents for first-quarter earnings calls for a 30.6% jump on a year-over-year basis. However, the consensus estimate for sales of $5.54 billion suggests a 3.6% fall, year on year.

U.S. Bancorp Price and EPS Surprise

U.S. Bancorp Price and EPS Surprise

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

Other Stocks That Warrant a Look

Here are other big 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 Wells Fargo & Company (WFC - Free Report) is +5.32% and it carries a Zacks Rank of 3, at present. The company is scheduled to report quarterly numbers on Apr 14.

Citigroup (C - Free Report) is slated to report quarterly results on Apr 15. The company has an Earnings ESP of +4.48% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of America Corporation (BAC - Free Report) is scheduled to release earnings numbers on Apr 15. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.49%.

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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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