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Will Loan Growth Support U.S. Bancorp (USB) Q3 Earnings?

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U.S. Bancorp (USB - Free Report) is scheduled to report third-quarter 2018 results on Oct 17, before the opening bell. The bank’s revenues and earnings are anticipated to reflect year-over-year growth.

Benefits of higher rates and improved lending scenario are expected to have offset the muted trading performance. The Zacks Consensus Estimate for sales of $5.7 billion reflects a rise of 2% from the year-ago quarter.

Further, in this era of digitization, card operations will likely have witnessed a rise. Thereby, the to-be-reported quarter will likely reflect growth in credit and debit card revenues (account for around 13% of total fee income). The Zacks Consensus Estimate of $346 million indicates a rise of 12.3% from the year-earlier quarter.

Other Factors to Influence Q3 Results

Steady Net Interest Income Growth: A modest increase in lending — mainly in the areas of commercial and industrial, and consumer — is expected to have led to improvement in net interest income (NII). A rise in interest rates will provide some support despite flattening of the yield curve in the Sep-end quarter.

Management expects net interest income to reflect increase in low-single digits, on a year-over-year basis, in the quarter.

Moreover, the Zacks Consensus Estimate for average interest earning assets of $416 million for the July-Sep quarter indicates 1.7% year-over-year improvement. Additionally, the Zacks Consensus Estimate for net interest income is $3.3 billion, up 3.1% year over year.

Consumer Revenue Growth: An improving economy is anticipated to have spurred consumer activity in the to-be-reported quarter, helping the payments, as well as consumer lending businesses. An improved economic backdrop will also have led to rise in business spending on development and capital investments.

Mortgage Banking Likely to be Lackluster: The mortgage business of U.S. Bancorp is expected to have witnessed a slowdown in the third quarter. With interest rates moving higher, refinancing activities and fresh originations have been slowing down. Therefore, no major help is expected from this segment. Thus, growth in U.S. Bancorp’s mortgage banking revenues will likely have remained low. The Zacks Consensus Estimate for mortgage banking revenues is $181 billion, down 15% year over year.

Overall Non-Interest Revenues to Disappoint: Outflows from the investment management business will likely have been recorded on market declines. Growth in trading revenues is predicted to have been muted as uncertainties, mainly related to the escalated U.S.-China trade war and some other geo-political tensions were inadequate to induce volatility. In addition, trust income is likely to disappoint on lower equity markets.

The Zacks Consensus Estimate for non-interest revenues is $2.4 billion, moderately down year over year.

However, management expects fee income to reflect increase in low-single digits, on a year-over-year basis.

Expeses Might Trend Higher: While the absence of considerable legal expenses is a positive, increased investments in technology to improve digital offerings might have escalated costs moderately.

n Here is what our quantitative model predicts:

U.S. Bancorp does not have the right combination of 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 -0.10%.

Zacks Rank: U.S. Bancorp carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. But we also need to have a positive ESP to be confident of a positive earnings surprise.

U.S. Bancorp Price and EPS Surprise

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

The Zacks Consensus Estimate for earnings of $1.04 reflects an 18.2% rise on a year-over-year basis.

Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Cullen/Frost Bankers, Inc. (CFR - Free Report) is set to release results on Oct 25. The company has an Earnings ESP of +0.54% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for M&T Bank (MTB - Free Report) is +0.35% and the stock carries a Zacks Rank of 3. The company is scheduled to report earnings on Oct 17.

People's United Financial, Inc. (PBCT - Free Report) has an Earnings ESP of +0.30% and holds a Zacks Rank of 2. It is slated to report quarterly numbers on Oct 18.

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