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Can Fee Income Growth Aid U.S. Bancorp’s (USB) Q1 Earnings?


U.S. Bancorp USB is scheduled to report first-quarter 2018 results on Apr 18, before the opening bell. The bank’s revenues and earnings are anticipated to be up year over year.

Benefits of higher rates, improved lending scenario and rebound in trading activities are anticipated to offset muted investment banking performance. The Zacks Consensus Estimate for sales of $5.5 billion reflects a rise of 4.9% from the year-ago quarter.

Before we discuss why an earnings beat might also be in store, let’s take a look at how the company performed in the prior quarter.

U.S. Bancorp’s fourth-quarter 2017 results reflected an increase in revenues supported by easing margin pressure and higher fee income. Also, a strong capital position and increasing loans were the positives. However, higher expenses and lower mortgage banking revenues were the key headwinds.

Notably, the company displays a decent earnings surprise history. It surpassed earnings estimates in three of the trailing four quarters, with an average positive surprise of 1.2%.

U.S. Bancorp Price and EPS Surprise

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

Why a Likely Positive Surprise?

Our proven model shows that U.S. Bancorp will likely beat on earnings in the first quarter. This is because the company has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — for a possible earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for U.S. Bancorp is +0.96%.

Zacks Rank: U.S. Bancorp carries a Zacks Rank of 3.

Though estimates for the to-be-reported quarter have remained stable over the last seven days, the Zacks Consensus Estimate for earnings of 94 cents reflects growth of 14.6% year over year.

Factors to Influence Q1 Results

Rise in net interest income (NII): Improvement in loan demand, particularly in commercial and industrial, real estate and consumer areas, along with and rising interest rates during the to-be-reported quarter will likely support the company’s NII. Also, income from interest earning assets (average balance) are projected to rise 4.5% to $417.2 billion.

Non-Interest Income Likely to Improve: Strong equity issuances along with a potential rise in fees from increasing M&A’s are likely to have supported U.S. Bancorp’s fee income. Per the consensus estimate, trust and investment management fees are likely to improve 8.1% to $398 million on a year-over-year basis. Moreover, the trend of consumer spending was strong during the quarter, which is likely to boost the bank’s credit and debit card revenues by 4.8% from year-ago quarter to $306 million.

Nevertheless, with the slowdown in refinancing activities caused by rising interest rates, no major help is expected from the mortgage banking segment. The consensus estimate for mortgage banking revenues is $197 billion, down 4.8% year over year.

Expenses Might Trend Higher: Increased investments in technology to improve digital offerings and seasonally higher compensation expenses might escalate costs moderately.

Other Stocks That Warrant a Look

Here are some other 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.

BOK Financial Corporation BOKF has an Earnings ESP of +0.78% and a Zacks Rank #2 (Buy). It is slated to report first-quarter 2018 results on Apr 25. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation BBT is slated to release results on Apr 19. It has an Earnings ESP of +1.63% and carries a Zacks Rank #3.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +0.21% and carries a Zacks Rank of 3. The company is also slated to release results on Apr 19.

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