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U.S. Bancorp (USB) Up 14% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for U.S. Bancorp (USB - Free Report) . Shares have added about 14% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is U.S. Bancorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
U.S. Bancorp's Q3 Earnings Beat as Revenues Improve Y/Y
U.S. Bancorp’s third-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges) of $1.05 outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 11% from the prior-year quarter.
Results have benefited from increased NII, supported by higher interest rates. A rise in non-interest income was another positive. However, higher expenses and provisions were the major headwinds.
Net income (GAAP basis) attributable to U.S. Bancorp was $1.52 billion, down 15.9% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total net revenues were $7 billion, up 11.2% year over year. The top line missed the Zacks Consensus Estimate of $7.01 billion.
The tax-equivalent NII totaled $4.27 billion, jumping 10.7% from the year-ago quarter. The increase was primarily driven by the impact of rising interest rates on earning assets and the acquisition of MUB.The net interest margin of 2.81% contracted 2 basis points year over year.
Non-interest income grew 11.9% year over year to $2.76 billion. The rise was driven by an increase in almost all fee income components, except for net securities gains.
Non-interest expenses climbed 24.6% year over year to $4.53 billion. The rise was due to an increase in almost all cost components, except for costs related to professional services.
The efficiency ratio was 64.4%, higher than the year-ago quarter’s 57.5%. A rise in the ratio indicates a deterioration in profitability.
Average total loans declined 3.1% sequentially to $376.88 billion. Average total deposits increased 3% from the prior-quarter end to $512.29 billion.
Credit Quality Worsens
Net charge-offs were $420 million, up significantly from $162 million in the year-ago quarter. Total allowance for credit losses was $7.79 billion, up 20.7% year over year. The provision for credit losses in the reported quarter was $515 million, up 42.3% from the prior-year quarter.
As of Sep 30, 2023, U.S. Bancorp’s non-performing assets were $1.31 billion, up 93.5% from the year-ago period.
Capital Ratios Mixed
The Tier 1 capital ratio was 11.2% as of Sep 30, 2023, unchanged from the prior-year quarter. The Common Equity Tier 1 capital ratio under the Basel III standardized approach was 9.7% as of Sep 30, 2023, unchanged from the year-ago quarter.
The tangible common equity to tangible assets ratio was 5.0%, down from the prior-year quarter’s 5.2%.
Share Repurchase Update
During the reported quarter, U.S. Bancorp did not repurchase any shares. Owing to the MUFG Union Bank acquisition, the company suspended share repurchases at the beginning of third-quarter 2021.
Outlook (Adjusted Basis)
Fourth-Quarter 2023
NII (taxable-equivalent basis) is expected to be $4.1-$4.2 billion. Management projects adjusted total revenues between $6.8 billion and $6.9 billion. The outlook includes purchase accounting accretion of $65 million.
The company estimates adjusted non-interest expenses to be $4.2 billion. The guidance includes core deposit intangibles amortization related to the Union Bank acquisition of $115 million.
It anticipates merger and integration charges between $250 million and $300 million. The income tax rate (tax equivalent basis) is suggested at 23%.
2024
Management expects 2024 expenses (on a core basis) to be flat with 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -5.06% due to these changes.
VGM Scores
Currently, U.S. Bancorp has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise U.S. Bancorp has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
U.S. Bancorp is part of the Zacks Banks - Major Regional industry. Over the past month, The Bank of New York Mellon Corporation (BK - Free Report) , a stock from the same industry, has gained 10.2%. The company reported its results for the quarter ended September 2023 more than a month ago.
The Bank of New York Mellon Corporation reported revenues of $4.37 billion in the last reported quarter, representing a year-over-year change of +2.2%. EPS of $1.27 for the same period compares with $1.21 a year ago.
The Bank of New York Mellon Corporation is expected to post earnings of $1.10 per share for the current quarter, representing a year-over-year change of -15.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.4%.
The Bank of New York Mellon Corporation has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.
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U.S. Bancorp (USB) Up 14% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for U.S. Bancorp (USB - Free Report) . Shares have added about 14% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is U.S. Bancorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
U.S. Bancorp's Q3 Earnings Beat as Revenues Improve Y/Y
U.S. Bancorp’s third-quarter 2023 adjusted earnings per share (excluding merger and integration-related charges) of $1.05 outpaced the Zacks Consensus Estimate by a penny. However, the bottom line declined 11% from the prior-year quarter.
Results have benefited from increased NII, supported by higher interest rates. A rise in non-interest income was another positive. However, higher expenses and provisions were the major headwinds.
Net income (GAAP basis) attributable to U.S. Bancorp was $1.52 billion, down 15.9% from the prior-year quarter.
Revenues Improve, Expenses Rise
Total net revenues were $7 billion, up 11.2% year over year. The top line missed the Zacks Consensus Estimate of $7.01 billion.
The tax-equivalent NII totaled $4.27 billion, jumping 10.7% from the year-ago quarter. The increase was primarily driven by the impact of rising interest rates on earning assets and the acquisition of MUB.The net interest margin of 2.81% contracted 2 basis points year over year.
Non-interest income grew 11.9% year over year to $2.76 billion. The rise was driven by an increase in almost all fee income components, except for net securities gains.
Non-interest expenses climbed 24.6% year over year to $4.53 billion. The rise was due to an increase in almost all cost components, except for costs related to professional services.
The efficiency ratio was 64.4%, higher than the year-ago quarter’s 57.5%. A rise in the ratio indicates a deterioration in profitability.
Average total loans declined 3.1% sequentially to $376.88 billion. Average total deposits increased 3% from the prior-quarter end to $512.29 billion.
Credit Quality Worsens
Net charge-offs were $420 million, up significantly from $162 million in the year-ago quarter. Total allowance for credit losses was $7.79 billion, up 20.7% year over year. The provision for credit losses in the reported quarter was $515 million, up 42.3% from the prior-year quarter.
As of Sep 30, 2023, U.S. Bancorp’s non-performing assets were $1.31 billion, up 93.5% from the year-ago period.
Capital Ratios Mixed
The Tier 1 capital ratio was 11.2% as of Sep 30, 2023, unchanged from the prior-year quarter. The Common Equity Tier 1 capital ratio under the Basel III standardized approach was 9.7% as of Sep 30, 2023, unchanged from the year-ago quarter.
The tangible common equity to tangible assets ratio was 5.0%, down from the prior-year quarter’s 5.2%.
Share Repurchase Update
During the reported quarter, U.S. Bancorp did not repurchase any shares. Owing to the MUFG Union Bank acquisition, the company suspended share repurchases at the beginning of third-quarter 2021.
Outlook (Adjusted Basis)
Fourth-Quarter 2023
NII (taxable-equivalent basis) is expected to be $4.1-$4.2 billion. Management projects adjusted total revenues between $6.8 billion and $6.9 billion. The outlook includes purchase accounting accretion of $65 million.
The company estimates adjusted non-interest expenses to be $4.2 billion. The guidance includes core deposit intangibles amortization related to the Union Bank acquisition of $115 million.
It anticipates merger and integration charges between $250 million and $300 million. The income tax rate (tax equivalent basis) is suggested at 23%.
2024
Management expects 2024 expenses (on a core basis) to be flat with 2023.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended downward during the past month.
The consensus estimate has shifted -5.06% due to these changes.
VGM Scores
Currently, U.S. Bancorp has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise U.S. Bancorp has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
U.S. Bancorp is part of the Zacks Banks - Major Regional industry. Over the past month, The Bank of New York Mellon Corporation (BK - Free Report) , a stock from the same industry, has gained 10.2%. The company reported its results for the quarter ended September 2023 more than a month ago.
The Bank of New York Mellon Corporation reported revenues of $4.37 billion in the last reported quarter, representing a year-over-year change of +2.2%. EPS of $1.27 for the same period compares with $1.21 a year ago.
The Bank of New York Mellon Corporation is expected to post earnings of $1.10 per share for the current quarter, representing a year-over-year change of -15.4%. Over the last 30 days, the Zacks Consensus Estimate has changed -2.4%.
The Bank of New York Mellon Corporation has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of C.