Earnings Preview: U.S. Bancorp

U.S.Bancorp (USB) is scheduled to report its first quarter 2011 earnings results before market opens on April 19. The Zacks Consensus Estimate for the first quarter is earnings of 49 cents per share, up from 34 cents earned in the year-earlier quarter. For full year 2011, the Zacks Consensus Estimate stands at $2.15 per share, representing a 25.7% increase from the prior-year earnings of $1.71 per share. The full year 2012 earnings estimate is currently $2.60 per share.

In March this year, U.S. Bancorp’s board of directors approved an increase of 150% in the dividend rate on its common stock. On an annual basis, the dividend comes to 50 cents per share or 12.5 cents per share on a quarterly basis. The increased dividend for the quarter will be paid on April 15 to shareholders of record as of March 31.

The board also approved U.S. Bancorp’s share repurchase authorization of 50 million of its outstanding common stock. The new authorization replaced the company’s share repurchase authorization of 20 million shares announced in December 2010. Through December 2011, the shares can be repurchased in the open market or in privately negotiated transactions.

Previous Quarter Performance

U.S. Bancorp reported fourth quarter 2010 earnings attributable to common shareholders of $974 million or 49 cents per share. However, excluding significant items, earnings came in at 47 cents per share, a penny ahead of the Zacks Consensus Estimate.

Quarterly results at U.S. Bancorp reflected an improvement in revenues as a result of business growth initiatives taken by the company, including acquisitions. Credit metrics also showed improvements. However, the positives were partially offset by an increase in expenses.

Revenues were strong at $4.7 billion in the fourth quarter, up 2.9% sequentially and 7.9% year over year, primarily reflecting growth in both interest and fee-based revenues.

Earnings Estimate Revisions

Ahead of the earnings release, we do see some movement in estimate revisions of the U.S. Bancorp stock. Looking at the trends, it becomes clear that analysts are optimistic on U.S. Bancorp’s prospects. While regulatory issues remain headwinds, recent capital deployment initiatives and acquisitions augur well for the stock.

Of the 22 analysts covering the U.S. Bancorp stock, 2 have raised their estimates both in the last 7 and 30 days for the first quarter of 2011, while one moved downward in the last 7 days and 3 in the last 30 days. For full year 2011, 4 analysts have revised up their estimates in the last 7 and 30 days and only 2 moved in the opposite direction in the last 30 days. For full year 2012, 4 moved north in the last 7 days and 5 in the last 30 days, while only 1 walked southward in the last 7 days and 3 in the last 30 days.

Magnitude of Estimate Revisions

However, looking further into the magnitude of estimate revisions, we find a somewhat static view. Over the last 7 days, the Zacks Consensus Estimate for the first quarter remained unchanged at 49 cents per share. For full year 2011 and 2012, estimates have nudged up a cent each to $2.15 and $2.60, respectively. The lack of any significant revision by the analysts suggests that, while retaining the share would be beneficial for investors, there may not be an entry point.

Earnings Surprise

U.S. Bancorp’s performance has been somewhat stable over the trailing four quarters with respect to earnings surprises, with all the four quarters showing a positive surprise. The average earnings surprise was a positive 7.4%, implying that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.


While the estimate revision trends showcase a somewhat positive outlook for U.S. Bancorp, the magnitudes of revision fail to provide a significant tempo. As such, U.S. Bancorp shares retain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.

U.S. Bancorp was one of the 19 banks including JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC) and Wells Fargo & Company (WFC), subjected to “stress tests” conducted by the Federal Reserve. Due to the recession, the Fed had put restrictions on increasing banks’ dividends and share buybacks in exchange of the bailout money. Following the repayment of the bailout money, many banks started pushing the regulators to let them restore their dividends.

This long expected decision was a major milestone for the banking sector, signalling that the notified banks have fully emerged from the effects of the financial crisis. This paved the way for these banks to reinstate dividends and buy back shares.

We believe recent acquisitions of First Community Bank (New Mexico) and Bank of America’s U.S. and European-based securitization trust administration businesses augur well for U.S. Bancorp. While the former expands the company’s business in New Mexico, the latter strengthens its market position within the U.S. structured finance trust business and provides expansion opportunities in the European market. It has weathered the economic downturn relatively well and has been one of the first few banks to increase dividend. Yet, regulatory issues and mortgage repurchase expenses will continue to pose as headwinds. Considering the fundamentals, we are maintaining a long-term “Neutral” recommendation on the stock.

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