The most recent U.S. Bancorp (USB) earnings report was released about a month ago. In that period, shares have lost nearly 6%, lagging the S&P 500.
Prior to the release of its next earnings report, will the present downward trend persist or is U.S. Bancorp due for a breakout? Let’s quickly review its most recent earnings report to better understand the key catalysts before delving into how investors and analysts have responded recently.
In the second quarter of 2023, U.S. Bancorp’s adjusted profits per share of $1.12 (excluding charges related to merger and integration, balance sheet optimisation, and provision for credit losses) fell short of the $1.13 Zacks Consensus Estimate. Nevertheless, it increased 2.8% from the same quarter last year.
An increase in NII, supported by increased interest rates, had a positive impact on the outcomes. Positives included an increase in non-interest income and a moderate loan growth. On the other hand, increased costs and a decline in the company’s credit rating were challenges.
U.S. Bancorp’s net income on a GAAP basis was $1.36 billion, an 11.1% decrease from the same quarter last year.
In the reviewed quarter, total net revenues were $7.14 billion, a 19.4% increase from the previous year. The top line fell short of the $7.16 billion Zacks Consensus Estimate.
Tax-equivalent NII was $4.45 billion, an increase of 28.4% from the same quarter last year. Rising interest rates on earning assets and the acquisition of MUFG Union Bank were the main causes of the increase.
The 2.9% net interest margin grew by 31 basis points from the previous year.
To $2.73 billion, non-interest revenue increased 7% from the previous year. The increase was primarily brought about by greater card revenues, revenues from corporate payment products, trust and investment management fees, revenues from commercial goods, and revenues from mortgage banking. A decrease in service charge revenues and a gain on net securities mitigated some of this.
Non-interest costs increased by 22.7% over the previous year to $4.57 billion. This was brought on by a rise in every expense component.
The efficiency ratio increased from the prior quarter’s 62.1% to 63.7%. An increase in the ratio signals a decline in profitability.
To $388.82 billion, the average total loan volume increased 1% sequentially. To $497.27 billion, the average total deposits declined 2.6%.
The average total loan volume climbed 1% sequentially to $388.82 billion. The average total deposits decreased 2.6% to $497.27 billion.
As of June 30, 2023, the Tier 1 capital ratio was 10.6%, down from the previous quarter’s 11.4%. As of June 30, 2023, the Tier 1 capital to risk-weighted assets ratio was 8.9%, down from 9.4%.
As of June 30, 2023, the Basel III standardised approach’s Common Equity Tier (CET) 1 capital ratio was 9.1%, down from 9.7% in the corresponding quarter last year.
The ratio of tangible common equity to tangible assets decreased from 5.5% in the same quarter last year to 4.8%.
In contrast to the $4.4 billion reported in the second quarter, NII (taxable-equivalent basis) is forecast to be in the range of $4.2-$4.4 billion.
In comparison to the second quarter’s $7.2 billion in revenues, management anticipates adjusted total revenues to range between $6.9 billion and $7.1 billion. The projection incorporates a $75 million or so purchase accounting accretion.
In comparison to the $4.3 billion recorded in the second quarter, the business anticipates non-interest expenses (excluding merger and integration costs) to be close to $4.3 billion. The estimated $120 million amortisation of core deposit intangibles from the purchase of Union Bank is included in the guidance.
Between $150 million and $200 million is what is expected to be spent on merger and integration costs.
The optimum range for the adjusted income tax rate (tax equivalent basis) is 23-24%.
NII (taxable-equivalent basis) is anticipated to be in the $17.5–$18 billion range in 2023.
Between $28 billion and $29 billion in adjusted total revenues are what the corporation projects. This includes a $330 million or so purchase accounting accretion.
The amount of non-interest costs (excluding merger and integration costs) is predicted to be close to $17 billion. This includes the approximately $500 million amortisation of core deposit intangibles connected to Union Bank.
The management estimates that the costs of the merger and integration will range from $900 million to $1 billion.
The appropriate range for the adjusted income tax rate (tax equivalent basis) is 23.
By the fourth quarter of 2024, the management anticipates the CET 1 ratio to be between 8.5 and 9%.
What Progress Have Estimates Made Since Then?
As it turns out, the review of estimates has been trending downward over the past month.
VGM Ratings
U.S. Bancorp now has a middling Growth Score of D, but its Momentum Score is doing much better with a B. The stock received a grade of B on the value side for continuing in the same direction, placing it in the second quintile for this investing strategy.
The stock has a cumulative VGM Score of C. This score is the one you should be interested in if you aren’t concentrating on a single tactic.
The stock’s estimates have been generally heading lower, and the size of these changes suggests a bearish shift. It is not surprising that U.S. Bancorp is rated #4 (Sell) by Zacks. In the upcoming several months, we anticipate the stock to perform below averagely.
Want the most recent Zacks Investment Research recommendations? Download the 7 Best Stocks for the Next 30 Days today.