At its Investor Day conference, U.S. Bancorp (USB - Free Report) lowered its long-term growth financial targets in the wake of the persistent global turmoil, anticipations of further rate cuts and low inflation in the coming quarters. However, long-term profitability expectations have been revised on efficient capital management to meet targets.
U.S. Bancorp has based its long-term forecasts on the Fed reducing interest rates to 1.5% by 2020, stable consumer confidence and unemployment of around 3.5-4%, along with gross domestic product growth of 1.5-2% and low inflation. Further, adoption of Current Expected Credit Losses Standard (CECL) in first-quarter 2020 has been taken into consideration.
ROE Outlook Upped; EPS, Revenue, Expense Guidance Revised
U.S. Bancorp now targets return on assets (ROA) in the range of 1.35-1.65%, unchanged from 2016. The company upped the return on equity (ROE) target to 14.5-17.5% from 13.5-16.5%.
Further, long-term target for return on tangible common equity had been kept unrevised in the range of 17.5-20%.
However, the Minneapolis-based bank dropped its long-term revenue growth projection to 5-7% from the 6-8% estimated in 2016.
On the cost front, management lowered its expense growth rate to be in the range of 2-4% from the prior target of 3-5%. In addition, the bank reiterated its long-term target for the efficiency ratio to remain in the low 50s range.
Therefore, given the changes in outlook for several line items, net income is now anticipated to grow at 5-7%, lower than the previous target of 6-8%. Also, the earnings per share growth rate is projected to be down in the 7-10% range from 8-10%.
We believe U.S. Bancorp, with its solid business model, is well poised for future growth. The company’s lucrative core franchise, diverse revenue streams, transformation to digital banking and a strong performance over the past years are impressive. Nonetheless, stringent but decreasing regulatory reforms, recent rate cut and escalating expenses are the primary deterrents for the company’s profitability.
Currently, U.S. Bancorp carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of U.S. Bancorp have gained 5.7% over the past three months compared with growth of 5.4% recorded by the industry.
Stocks to Consider
First Horizon National Corporation (FHN - Free Report) has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked stock has rallied more than 25%, year to date.
MidWestOne Financial Group, Inc. (MOFG - Free Report) has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 24.4%, year to date. At present, it carries a Zacks Rank of 2 (Buy).
Ameriprise Financial, Inc. (AMP - Free Report) has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 40.2%, year to date. It currently carries a Zacks Rank #2.
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