Fee Income to Support U.S. Bancorp (USB) Q3 Earnings

U.S. Bancorp USB is scheduled to report third-quarter 2019 results on Oct 16, before the opening bell. The bank’s revenues and earnings are likely to display year-over-year growth.

Given the rise in digitization, card operations and demand for online services are likely to have increased in the third quarter. Thus, the company’s credit and debit card, along with merchant processing revenues (accounting for around 30% of total fee income), are expected to grow.

Further, improvement in mortgage banking performance and strong equity markets are expected to have offset the slowdown in lending activities. The Zacks Consensus Estimate for sales of $5.8 billion indicates a rise of 2.3% from the year-ago reported figure.

Before we look at other factors that might have impacted third-quarter earnings, let’s take a look at how the company performed in the past quarters.

Notably, U.S. Bancorp boasts an impressive earnings surprise history. It surpassed estimates in three of the trailing four quarters, the average positive surprise being 1.18%.

U.S. Bancorp Price and EPS Surprise

U.S. Bancorp Price and EPS Surprise

U.S. Bancorp price-eps-surprise | U.S. Bancorp Quote

Other Factors At Play

Soft Net Interest Income Growth: A dismal lending scenario — mainly in the areas of commercial and industrial, and commercial real estate — during the third quarter is expected to have had an adverse impact on net interest income (NII), while decent consumer loan growth might have been an offsetting factor.

Further, the Fed’s accommodative policy stance with decline in interest rates (two rate cuts – in July and September), flattening of the yield curve 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 $433.1 billion for the third quarter indicates improvement of 4.3% year over year.

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

The Zacks Consensus Estimate of $3.31 billion for NII projects 1.8% rise.

Consumer Revenue Growth: With the improving economy, deposits are likely to have increased, leading to higher revenues from service charge on deposits. Per the consensus estimate, deposit service charges are likely to have been up 18.7% year over year.

Further, pickup in refinancing activities on the back of lower mortgage rates during the quarter is likely to have offered support. The Zacks Consensus Estimate for mortgage banking revenues is $206 billion, up 18.4%.

Payment Services Revenues to Witness Strong Growth: With the increasing demand for online payment of products and services, fees charged to merchants for the electronic processing of transactions are expected to have flared up. The Zacks Consensus Estimate projects 5.4% improvement in merchant processing services revenues.

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 reflect improvement on rebound in equity markets. The consensus estimate for trust and investment management fees indicates a jump of 2.7%.

Given expectations of rise in most components, the Zacks Consensus Estimate for non-interest revenues is pegged at $2.51 billion, up 4.2%.

In addition, management projects fee revenues to have been up in the mid-single-digits year over year.

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

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 -0.36%.

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 $1.11 reflects a 4.7% 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.

M&T Bank Corporation MTB is slated to release results on Oct 17. The company has an Earnings ESP of +0.34% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Citigroup C has an Earnings ESP of +0.55% and at present, holds a Zacks Rank of 3. It is slated to report quarterly figures on Oct 15.

The Bank of New York Mellon Corporation BK is scheduled to release results on Oct 16. The company, which currently carries a Zacks Rank of 3, has an Earnings ESP of +0.11%.

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