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Rising Rates to Support U.S. Bancorp (USB) Q4 Earnings

Zacks Equity Research

U.S. Bancorp USB is scheduled to report fourth-quarter 2018 results on Jan 16, before the opening bell. The bank’s revenues and earnings are anticipated to reflect year-over-year growth.

Benefits of higher rates and improved lending scenario are expected to have offset the muted trading performance. The Zacks Consensus Estimate for sales of $5.7 billion reflects a rise of 2.5% from the year-ago quarter.

Further, in this era of digitization, card operations will likely have witnessed a rise. Thus, the company’s performance in to-be-reported quarter will likely reflect growth in credit and debit card revenues (account for around 13% of total fee income). The Zacks Consensus Estimate of $362 million indicates a rise of 8.7% from the year-earlier quarter.

Other Factors to Influence Q4 Results

Steady Net Interest Income Growth: A decent lending backdrop, particularly in the areas of commercial and industrial, commercial real estate and consumer will offer support to banks’ interest income, while weakness in revolving home equity loans (due to slowdown in originations as well as refinancing activities) will partially offset this.

Management expects net interest income to reflect increase in low-single digits, on a sequential basis, in the quarter.

In addition, the Zacks Consensus Estimate for average interest earning assets of $418 million for the Oct-Dec quarter indicates slight sequential improvement. Additionally, the Zacks Consensus Estimate for net interest income is $3.3 billion, marginally up sequentially.

Consumer Revenue Growth: An improving economy is anticipated to have spurred consumer activity in the Dec-end quarter, helping the payments, as well as consumer lending businesses. An improved economic backdrop will also have led to rise in business spending on development and capital investments.

Mortgage Banking Likely to be Lackluster: The mortgage business of U.S. Bancorp is expected to have witnessed a slowdown in the fourth quarter as well. With interest rates moving higher, refinancing activities and fresh originations have been slowing down. Therefore, no major help is expected from this segment. Thus, growth in U.S. Bancorp’s mortgage banking revenues will likely have remained low. The Zacks Consensus Estimate for mortgage banking revenues is $172 billion, down 1.1% sequentially.

Overall Non-Interest Revenues to Disappoint: Outflows from the investment management business will likely have been recorded on market declines. Though escalating trade-war concerns, Brexit issues, anxiety on rising rates and some other geo-political tensions during the quarter created high volatility, seasonality on a sequential basis might be an offsetting factor for trading revenues. In addition, trust income might disappoint on lower equity markets.

The Zacks Consensus Estimate for non-interest revenues is $2.4 billion, moderately up year over year.

Further, management expects fee income to reflect year-over-year growth at a low-to-mid-single digit.

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 has 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 +0.26%.

Zacks Rank: U.S. Bancorp carries a Zacks Rank #3 (Hold), which increases the predictive power of ESP.

The Zacks Consensus Estimate for earnings of $1.06 reflects a 20.5% rise on a year-over-year basis.

U.S. Bancorp Price and EPS Surprise

U.S. Bancorp Price and EPS Surprise | U.S. Bancorp Quote

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.

Huntington Bancshares Incorporated HBAN is slated to release results on Jan 24. The company has an Earnings ESP of +0.32% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for M&T Bank MTB is +0.80% and the stock holds a Zacks Rank of 3. The company is scheduled to release results on Jan 17.

BB&T Corporation BBT has an Earnings ESP of +0.32% and carries a Zacks Rank of 3. It is slated to report results on Jan 17.

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