Can Fee Income Growth Aid U.S. Bancorp's (USB) Q4 Earnings?

U.S. Bancorp (NYSE:USB) is scheduled to report fourth quarter and 2017 results on Jan 17, before the opening bell. The bank’s revenues and earnings are anticipated to be up year over year.

Benefits of higher rates, decent loan growth and relatively better performance of the consumer banking segment are anticipated to offset the slowdown in trading. The Zacks Consensus Estimate for sales is projected to be $5.6 billion, up 3.9% year over year.

Why a Likely Positive Surprise?

Our proven model shows that U.S. Bancorp will likely beat on earnings in the fourth 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 the stock is currently pegged at +0.13%. This is a significant and leading indicator of a likely positive earnings surprise for the company.

Zacks Rank: The combination of U.S. Bancorp’s Zacks Rank of 3 and a positive ESP makes us reasonably confident of an earnings beat.

U.S. Bancorp delivered positive earnings surprises in three of the four trailing quarters, with an average beat of 1.23%. Notably, U.S. Bancorp’s earnings for the quarter are expected to increase 6.1% from the prior-year quarter to 87 cents.

U.S. Bancorp Price and EPS Surprise

Factors to Influence Q4 Results

Rise in net interest income (NII): Improvement in loan demand, particularly consumer loans, 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 nearly 1% to $421.3 billion.

Non-Interest Income Likely to Improve: Higher debt origination and equity issuances are likely to have supported U.S. Bancorp’s fee income. Per the consensus estimate, trust and investment management fees are likely to improve 1.3% to $385 million on a sequential 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 6.2% sequentially to $327 million.

Nevertheless, with the refinance boom nearing its end, no major help is expected from this segment. The consensus estimate for mortgage banking revenues is $199 billion, down 6.6% sequentially.

Expenses Might Trend Higher: While the absence of considerable legal expenses is a positive, increased investments in technology to improve digital offerings might escalate costs moderately. Also, there will be impact of the one-time charge that comes with the tax overhaul.

Activities of U.S. Bancorp during the quarter to be reported were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 87 cents over the last seven days.

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.

BB&T Corporation (NYSE:BBT) has an Earnings ESP of +0.33% and a Zacks Rank #2 (Buy). It is slated to report fourth-quarter and 2017 results on Jan 18. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank Of New York Mellon Corporation (NYSE:BK) Earnings ESP is +0.16% and it carries a Zacks Rank of 3. The company is expected to release fourth-quarter and 2017 results on Jan 18.

SunTrust Banks (NYSE:STI) has an Earnings ESP of +0.81% and a Zacks Rank of 2. It is scheduled to report results on Jan 19.

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