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Will Payment Services Boost U.S. Bancorp (USB) Q2 Earnings?

Zacks Equity Research

U.S. Bancorp USB is scheduled to report second-quarter 2019 results on Jul 17, before the opening bell. The bank’s revenues and earnings are anticipated to grow year over year.

Given the rise in digitization, card operations and demand for online services are likely to have increased in the 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 $5.73 billion indicates a rise of 2.1% from the year-ago reported figure.

Before we look at other factors that might impact second-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 each of the trailing four quarters, the average positive surprise being 1%.

U.S. Bancorp Price and EPS Surprise

U.S. Bancorp Price and EPS Surprise

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

Factors to Influence Q2 Results

Soft Net Interest Income Growth: A disappointing lending backdrop, particularly in the areas of commercial and industrial loans, and real estate will impact banks’ interest income. Also, the margin is likely to be affected by flattening of yield curve and the Fed’s accommodative policy stance.

However, the Zacks Consensus Estimate for average interest earning assets of $423.3 billion for the second quarter indicates improvement of 2.6% year over year.

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

The Zacks Consensus Estimate of $3.29 billion for NII projects 2.9% 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 grow 22.4% year over year.

Further, pickup in refinancing activities on the back of lower mortgage rates during the quarter is likely to offer support. The Zacks Consensus Estimate for mortgage banking revenues is $198 billion, up 3.7%.

Payment Services Revenues to Witness Strong Growth: Per the Fed’s data, demand for credit card loans likely picked pace in the second quarter, resulting in higher usage of debit/credit cards. Thus, the consensus estimate indicates 4.8% growth in card fees.

Also, with the increasing demand for online payment of products and services, fees charged to merchants for the electronic processing of transactions are expected to increase. The Zacks Consensus Estimate projects 3.1% 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 1.7%.

Given expectations of rise in most components, the Zacks Consensus Estimate for non-interest revenues is pegged at $2.44 billion, up 1.1%.

Further, management expects fee revenues to increase in the low single-digits year over year, including the negative impact of the sale of the ATM business.

Expenses Might Trend Higher: Increased investments in technology to improve digital offerings and seasonal rise in employee compensation and benefits might have escalated costs moderately.

Earnings Whispers

According to our quantitative model, it cannot be conclusively predicted if U.S. Bancorp will be able to beat estimates this time. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to be confident of an earnings surprise call.

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 -0.47%.

Zacks Rank: U.S. Bancorp currently has a Zacks Rank #3, which increases the predictive power of ESP. But we need to have positive Earnings ESP to be sure of an earnings beat.

Notably, the Zacks Consensus Estimate for earnings of $1.07 suggests a 4.9% rise from the year-ago reported number.

Stocks to Consider

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 time around.

Comerica Incorporated CMA is scheduled to release results on Jul 17. It has an Earnings ESP of +0.52% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation MTB is scheduled to release results on Jul 18. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.20%.

The Earnings ESP for Wells Fargo & Company WFC is +0.11% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 16.

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