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Will U.S. Bancorp (USB) Disappoint Earnings this Season? - Analyst Blog

U.S. Bancorp ( USB ) is scheduled to report its third-quarter 2014 results before the opening bell on Wednesday, Oct 22.

In the last quarter, this banking giant reported an earnings surprise of 1.3%, which was primarily attributable to the company's strong top-line performance. While its solid capital position, improving credit quality and growth in average loans and deposits were the positives, increase in expenses was concerns.

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 Q3 Results

The overall backdrop has not changed significantly from what the industry witnessed in the first two quarters. 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 a stable balance sheet 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 for U.S. Bancorp.

In addition to the new set of challenges, pressure on net interest margins from the prolonged low rate environment hurt the top line. However, investment banking should bring some relief due to heightened M&A activities during the quarter.

Though U.S. Bancorp targets to maintain an efficiency ratio in the low 50s by continuing to manage expenses in relation to revenue trends and investment in businesses, the same is not expected in 2014 amid the stressed macroeconomic environment.

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 78 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 third quarter. 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 78 cents.

Zacks Rank: U.S. Bancorp's Zacks Rank #4 (Sell) further lowers the predictive power of ESP.

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:

Hudson City Bancorp, Inc. ( HCBK ) has an earnings ESP of +16.67% and carries a Zacks Rank #3. It is expected to report its third-quarter results on Oct 22.

Texas Capital BancShares Inc. ( TCBI ) has an earnings ESP of +1.33% and a Zacks Rank #2. It is slated to report results on Oct 22.

CIT Group Inc. ( CIT ) has an earnings ESP of +11.36% and a Zacks Rank #3. It is slated to report results on Oct 28.

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US BANCORP (USB): Free Stock Analysis Report

HUDSON CITY BCP (HCBK): Free Stock Analysis Report

CIT GROUP (CIT): Free Stock Analysis Report

TEXAS CAP BCSHS (TCBI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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