U.S. Bancorp (USB) is scheduled to report its second-quarter 2014 results before the opening bell on Wednesday, Jul 16.
In the last quarter, this banking giant delivered earnings as expected. While its strong capital position, improving credit quality and growth in average loans and deposits were reflected, undisciplined expense management and lower top line were concerns.
Recently, U.S. Bancorp doubled its deposit market share in Chicago with the closure of the acquisition of the Chicago branch network of the Charter One Bank franchise owned by RBS Citizens Financial Group, a subsidiary of The Royal Bank of Scotland Group plc. With this deal, U.S. Bank now has over 160 branches in Chicago. It is expected to aid U.S. Bancorp to overcome the financial complexities in its internal rate of return and enhance earnings per share.
Will U.S. Bancorp impress in the upcoming release after combating the challenges the industry witnessed during the quarter? Let's see what factors might have influenced the earnings report this time around.
Factors to Influence Q2 Results
Banks’ efforts to settle lawsuits related to shoddy pre-crisis mortgage practices remained the key trend in the quarter. This was accompanied by dumping unprofitable businesses and concentrating on those with strong potential.
Then again, continued expense control and stable balance sheets should act as tailwinds in the quarter. However, a set of dampeners – dreary consumer and corporate activities, soft trading volumes and sluggish mortgage banking activities – are likely to drag earnings. Moreover, litigation costs related to recent settlements might drive down profitability.
In addition to the new set of challenges, a dearth of significant loan growth and pressure on net interest margins from the prolonged low rate environment hurt the top line. However, investment banking should bring some breather due to heightened M&A activities during the 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 77 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 second 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 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Earnings ESP: The Earnings ESP for U.S. Bancorp is -1.30%. This is because the Most Accurate estimate of 76 cents is below the Zacks Consensus Estimate of 77 cents.
Zacks Rank: U.S. Bancorp’s Zacks Rank #3 (Hold), however, increases the predictive power of ESP. However, 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:
Fifth Third Bancorp (FITB) has an earnings ESP of +4.44% and carries a Zacks Rank #3 (Hold). It is scheduled to report its second-quarter results on Jul 17.
Capital One Financial Corporation (COF) has an earnings ESP of +1.12% and carries a Zacks Rank #2 (Buy). It is scheduled to report its second-quarter results on Jul 17.
The earnings ESP for Regions Financial Corporation (RF) is +4.76% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its second-quarter results on Jul 22.
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