U.S. Bancorp USB is scheduled to report first-quarter 2015 results before the opening bell on Wednesday, Apr 15.
Last quarter, this banking giant reported 2.6% year-over-year growth in earnings, and also beat the Zacks Consensus Estimate. While higher revenues, strong capital position, lower nonperforming assets and growth in average loans and deposits were the positives, mounting expenses were a major drawback.
Will U.S. Bancorp impress in the upcoming release after combating the challenges which the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q1 Results
As economic recovery has paced up in 2015, the survival strategies adopted by U.S. banks will likely lift their results. However, there is no respite from the nagging structural pressure and weakness in a few key segments. Capital market activity is unlikely to show any significant improvement and overall loan growth is expected to remain tepid.
In Feb 2015, U.S Bancorp was ordered by the U.S. Commodity Futures Trading Commission to pay $18 million to customers of Peregrine Financial Group, Inc. This fine was incurred as a result of inappropriately handling a Peregrine customer segregated funds account which enabled the owner of Peregrine, Russell Wasendorf, Sr., to extract $215 million from clients.
U.S. Bancorp might experience limited top-line growth as the company’s net interest income will likely remain subdued in the absence of an interest rate hike and significant loan growth during the quarter. Moreover, management anticipates net interest margin to shrink by 2–3 basis points during the quarter.
Nevertheless, growth in non-interest income, which outpaced net interest income in 4Q14, will likely drive revenues in 1Q15, supported by an expected rise in fee business and pickup in the housing markets. Notably, there has been a rise in refinance applications owing to lower mortgage rates in the quarter which is expected to boost mortgage revenues. Further, as the company’s credit metrics move toward normalized levels, provision for credit losses is predicted to remain relatively unchanged and support results.
However, mounting legal and compensation expenses can potentially increase non-interest expenses during the quarter. Management, on the other hand, projects expenses to remain relatively stable, as an anticipated rise in quarterly pension expense will likely be offset by absence of charitable and seasonal charges incurred in the prior quarter.
Activities of U.S. Bancorp during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 76 cents per share over the last 7 days.
Earnings Whispers
Our proven model does not conclusively show that U.S. Bancorp is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Earnings ESP: The Earnings ESP for U.S. Bancorp is 0.00%. This is because the Most Accurate estimate stands at par with the Zacks Consensus Estimate at 76 cents.
Zacks Rank: U.S. Bancorp’s Zacks Rank #3 increases the predictive power of ESP. But we also need to have a positive ESP to be confident of an earnings surprise call.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
JPMorgan Chase & Co. JPM has an earnings ESP of +0.72% and carries a Zacks Rank #2. It is scheduled to report second-quarter results on Apr 14.
Fifth Third Bancorp FITB has an earnings ESP of +2.70 and carries a Zacks Rank #3. It is scheduled to report first-quarter results on Apr 21.
The earnings ESP for SunTrust Banks, Inc. STI is +1.39% and it carries a Zacks Rank #3. The company is scheduled to release first-quarter results on Apr 20.
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