U.S. Bancorp USB is scheduled to report its third-quarter 2015 results on Thursday, Oct 15, 2015, before the opening bell.
The Minnesota based-banking giant’s second-quarter 2015 earnings beat the Zacks Consensus Estimate. Results were aided by lower expenses and reduction in provisions. Moreover, a strong capital position and growth in average loans and deposits were the positives for the quarter. However, decrease in revenues was on the downside.
Will U.S. Bancorp fail to post an earnings beat this quarter? Let’s see how things have shaped up.
What to Expect?
U.S. Bancorp had launched the sale of its student loans, however, following issues in the student loan securitization market, the company will now return the student loans to portfolio. For this purpose, the company expects to recognize a negative market adjustment in the range of $55–$60 million in the third quarter. However, the company anticipates the adjustment to accrete to income over the remaining life of the loans.
Also, the company expects expenses of $50 million to $60 million in the quarter relating to mortgage compliance and costs for talent upgrade.
However, the total impact of these events will be neutral as the company expects VISA gain of $120 million to $130 million in the third quarter.
Given the persistent low environment, we do not expect significant improvement in the net interest income. Notably, on a sequential basis, management expects net interest margin to remain stable.
However, a diversified fee-income base should support revenue growth. While mortgage fees is anticipated to trend slightly lower, payment fees are likely to exhibit an increase owing to seasonality.
Expenses are expected to increase sequentially though core expense may remain flat. However, as U.S. Bancorp remains focused on improving efficiency through prudent expense management, efficiency ratio should exhibit some improvement.
Additionally, management expects loan growth in the range of 1–1.5% for the third quarter and credit quality should be stable compared to the second quarter.
Activities of U.S. Bancorp during the quarter were adequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained stable at 81 cents per share over the last seven days.
Earnings Whispers
Our proven model does not conclusively show that U.S. Bancorp is likely to beat the Zacks Consensus Estimate in the upcoming release. This 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.
Zacks ESP: The Earnings ESP for U.S. Bancorp is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate stand at 81 cents.
Zacks Rank: U.S. Bancorp’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.
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:
The M&T Bank Corporation MTB has an earnings ESP of +1.52% and carries a Zacks Rank #3. It is expected to report its third-quarter results on Oct 16.
The earnings ESP for The Bank of New York Mellon Corporation BK is +1.39% and it carries a Zacks Rank #3. The company is scheduled to release its third-quarter results on Oct 20.
Capital One Financial Corporation COF has an earnings ESP of +3.14% and carries a Zacks Rank #3. It is expected to report its third-quarter results on Oct 22.
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