U.S. Bancorp USB is scheduled to report fourth-quarter and 2021 results on Jan 19, before the opening bell. USB’s revenues and earnings are likely to have improved year over year.
Before we analyze the factors that might have impacted the fourth-quarter earnings, let’s look at U.S. Bancorp’s performance over the last few quarters.
In the last reported quarter, USB’s earnings surpassed the Zacks Consensus Estimate on reserve release and loan growth. However, lower revenues along with escalating expenses were the key worrying factors.
U.S. Bancorp has a decent surprise history. Earnings surpassed estimates in three of the trailing four quarters and met the mark in the remaining one, the average surprise being 19.3%.
U.S. Bancorp Price and EPS Surprise
U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote
USB’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for fourth-quarter earnings of $1.11 has moved 1.8% south in the past 30 days. Nonetheless, the figure indicates a 16.8% rise from the year-ago reported figure. The consensus estimate for revenues is pegged at $5.76 billion, suggesting growth of 0.6% from the year-ago reported figure.
Key Developments During the Quarter
In early December 2021, U.S. Bancorp’s subsidiary U.S. Bank completed the previously announced deal to acquire PFM Asset Management. The buyout amplifies U.S. Bank’s presence in institutional asset management nationwide and bolsters its position as a dominant provider of varied investment solutions in the country.
In November 2021, U.S. Bancorp agreed to acquire San Francisco-based fintech firm TravelBank, which offers technology-driven cost and travel management solutions. For U.S. Bank, which is already an industry leader in delivering innovative corporate payment solutions like virtual corporate credit cards and tools to improve working capital, the acquisition will help it accelerating the integration of digital payments within its commercial segment.
Key Factors to Impact Q4 Results
Net Interest Income (NII): In the fourth quarter, which is typically a seasonally-strong quarter for loan growth, lending activity did witness a decent acceleration, sequentially. Per the Fed’s latest data, the commercial and industrial loans, real-estate loans and consumer loan portfolios remained strong in October and November. Amid this, USB is likely to witness decent loan growth in the fourth quarter.
Low deposit costs are expected to reduce interest expense, thereby alleviating pressure from NII. However, excess liquidity and low reinvestment rates on securities might have put downward pressure on earning asset yields, thereby affecting interest income.
The Zacks Consensus Estimate of $508.3 billion for the quarterly average interest earning assets indicates a marginal sequential improvement, while the estimate for NII suggests a sequential 1.5% decrease to $3.13 billion. For the fourth quarter of 2021, management expects fully taxable equivalent NII to be relatively stable compared with the third quarter.
Non-Interest Income: Mortgage rates increased sequentially in the to-be reported quarter. Also, mortgage origination activities are estimated to have decreased dramatically, with the rising rates dismaying refinancing activity. The Zacks Consensus Estimate for mortgage banking revenues is pegged at $354 billion, suggesting a 15% drop from the prior quarter’s reported number.
Card fees are likely to have improved on higher consumer spending owing to decreased unemployment level and consumer optimism. Also, demand for online payment of products and services is expected to have been decent. The consensus estimate for credit and debit card fees of $352 million calls for 3.3% sequential growth. Management also expects total payment revenue trends to continue to have strengthened in the to-be-reported quarter.
Volatility in the equity markets persisted during fourth-quarter 2021. Thus, driven by a spike in equity trading volumes and higher client activities, USB’s trading business is likely to have received a substantial boost. Nonetheless, fixed-income trading has continued to normalize in the quarter, affecting trading revenues. The Zacks Consensus Estimate for U.S. Bancorp’s commercial product revenues indicates a 1.4% sequential fall.
Deposits showed improvement in the quarter, led by stimulus-driven liquidity and a rise in money market balances. These are likely to have resulted in higher revenues from service charges on deposits.
The Zacks Consensus Estimate for the total non-interest income is pegged at $2.6 billion, suggesting a 2.3% fall from the prior quarter’s reported number.
Expenses: While the absence of considerable legal expenses is encouraging, increased investments in technology to improve digital offerings might have moderately escalated costs. This is expected to have limited bottom-line growth in the fourth quarter.
Here is what our quantitative model predicts:
U.S. Bancorp does not have 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 this time around.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: U.S. Bancorp has an Earnings ESP of -1.83%.
Zacks Rank: U.S. Bancorp currently carries a Zacks Rank of 3.
Stocks That Warrant a Look
First Republic Bank FRC, The PNC Financial Services Group, Inc. PNC and Huntington Bancshares Incorporated HBAN are a few companies that you might want to consider as these have the right combination of elements to beat on earnings in their upcoming releases, per our model.
First Republic has an Earnings ESP of +2.11% and a Zacks Rank of 3 at present. FRC is slated to report fourth-quarter and full-year results on Jan 14.
Over the past 30 days, FRC’s Zacks Consensus Estimate for quarterly earnings has moved 2.1% upwarsd.
PNC Financial is scheduled to release fourth-quarter 2021 and annual earnings on Jan 18. PNC, which is Zacks #3 Ranked at present, has an Earnings ESP of +2.29%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
PNC’s fourth-quarter earnings estimates have moved marginally lower over the past month.
Huntington Bancshares is scheduled to release earnings on Jan 21. HBAN, currently a #3 Ranked player, has an Earnings ESP of +1.46%.
The Zacks Consensus Estimate for Huntington Bancshares’ fourth-quarter earnings has remained unchanged over the past month.
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