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Muted Interest Income to Mar U.S. Bancorp (USB) Q4 Earnings

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U.S. Bancorp USB is scheduled to report fourth-quarter and full-year 2019 results on Jan 15, before the opening bell. While its earnings are expected to have improved year over year, revenues are likely to have declined.

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

Notably, U.S. Bancorp boasts an impressive earnings surprise history. It surpassed estimates in three of the trailing four quarters, with the average positive surprise being 1.6%.

U.S. Bancorp Price and EPS Surprise

Factors at Play

Lower Net Interest Income: A dismal lending scenario, mainly in the commercial & industrial loans front, is expected to have impacted net interest income (NII) during the quarter.

Also, the Fed’s accommodative policy stance with decline in interest rates and steadily rising deposit betas are likely to have hurt its net interest margin.

However, the Zacks Consensus Estimate for average interest earning assets of $441 billion for the quarter indicates 4.9% year-over-year improvement.

Management expects NII to decline in low-single digits on a year-over-year basis.

The Zacks Consensus Estimate of $3.26 billion for NII points to 1.4% year-over-year fall.

Higher Consumer Revenues: Deposits have shown improvement in the quarter, which is likely to have resulted in higher revenues from service charge on deposits. The consensus estimate for deposit service charges indicates 18.1% year-over-year growth.

Further, pickup in refinancing activities on the back of lower mortgage rates during the quarter is likely to have offered further support to the company. The Zacks Consensus Estimate for mortgage banking revenues is $241 billion, suggesting a 41% increase from a year ago.

Payment Services Revenues to Grow: With increasing demand for online payment of products and services, fees charged to merchants for electronic processing of transactions are expected to have flared up. The Zacks Consensus Estimate for merchant processing services revenues implies a 5.1% improvement.

Overall Non-Interest Revenues to Rise: Inflows from the investment management business might have been recorded on market gains in the quarter. In addition, trust income is likely to have improved on rebound in equity markets. The consensus estimate for trust and investment management fees indicates a year-over-year jump of 3.9%.

Given modest growth expectation in most components, the Zacks Consensus Estimate for non-interest revenues is pegged at $2.57 billion, pointing to a 3% increase from the year-ago period.

In addition, management projects fee revenues to increase in mid-single digits year over year.    

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

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: Earnings ESP for U.S. Bancorp is -0.14%.

Zacks Rank: U.S. Bancorp currently carries a Zacks Rank of 3, which increases the predictive power of ESP. But we need to have positive earnings ESP to be sure of an earnings beat.

The Zacks Consensus Estimate for earnings of $1.08 indicates a 1% rise on a year-over-year basis.

Stocks That Warrant a Look

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

The Goldman Sachs Group, Inc. (GS - Free Report) is slated to release quarterly results on Jan 15. The company has an Earnings ESP of +1.34% 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 is scheduled to report quarterly earnings on Jan 15. The company, which carries a Zacks Rank of 2 at present, has an Earnings ESP of +0.13%.

Earnings ESP for Northern Trust Corporation NTRS is +0.45% and it currently carries a Zacks Rank of 3. The company is set to report quarterly numbers on Jan 22.

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