U.S. Bancorp (NYSE: USB) is scheduled to report its fiscal Q1 2021 results on Thursday, April 15. We expect U.S. Bancorp to beat the consensus estimates for revenues and earnings. The bank has reported better than expected profit figures in each of the last three quarters, and its full-year revenues were marginally ahead of the 2019 figure. USB’s net interest income figure slightly decreased in 2020, due to the lower interest rate environment which affected the net interest margin, partially offset by growth in outstanding loans. The negative impact was compensated by higher non-interest income, primarily in the wholesale banking and consumer banking segments. We expect the same trend to drive the first-quarter FY2021 results as well.
Our forecast indicates that U.S. Bancorp’s valuation is around $53 per share, which is 8% below the current market price of around $58. Look at our interactive dashboard analysis on U.S. Bancorp’s pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be ahead of consensus estimates in Q1
Trefis estimates U.S. Bancorp’s fiscal Q1 2021 revenues to be around $5.71 billion, 3% above the $5.53 billion consensus estimate. U.S. Bancorp revenues of $23.2 billion for the full year 2020 were marginally ahead of the 2019 figure. This was despite a 2% y-o-y drop in the net interest income which contributes around 55% of the total revenues. The net interest margin did suffer in the year, however, some growth in the outstanding loans reduced the impact on the net interest income. The top-line benefited in 2020 from significant growth in mortgage origination, commercial products revenue, and securities gains income, which increased the non-interest revenues by 6% y-o-y. We expect the same momentum to continue in the first quarter of FY2021.
Although the interest rates are unlikely to see an immediate recovery to the pre-Covid-19 levels – the Fed has decided to maintain its benchmark rate near zero (as per the latest update on March 17th), consumer spending levels are likely to bounce back with improvement in the economic conditions. Overall, the bank’s revenues are likely to remain around $22.8 billion in FY2021. Our dashboard on U.S. Bancorp revenues offers more details on the company’s segments.
2) EPS likely to beat the consensus estimates
U.S. Bancorp’s Q1 2021 adjusted earnings per share (EPS) is expected to be $1.02 per Trefis analysis, almost 7% above the consensus estimate of $0.95. The bank’s profitability figures fell in 2020, with its adjusted net income decreasing by 30% y-o-y to $4.6 billion. This reduced the EPS figure from $4.16 to $3.06. This could be primarily attributed to a sizable jump in provisions for loan losses from $1.5 billion to $3.8 billion. The provisions were increased to compensate for the higher risk of loan defaults due to the impact of the Covid-19 crisis and the economic slowdown – the bank holds a substantial loan portfolio of $304 billion (as per 2020 figures). Further, a slight increase in operating expenses as a % of revenues from 55.9% to 57.6% also weighed on the net income. That said, the bank has reduced its provisions for loan losses in the fourth quarter on a sequential basis and we expect the same trend to continue in the FY2021 Q1 results.
The recently approved stimulus checks and availability of the Covid-19 vaccine will likely boost the loan repayment capability of the bank’s customers. It will likely result in a favorable decrease in the provisions for credit losses over the subsequent quarters. Altogether, the bank is likely to report an EPS of around $4.25 in FY2021.
(3) Stock price estimate 8% lower than the current market price
Going by our U.S. Bancorp valuation, with an EPS estimate of around $4.25 and a P/E multiple of just above 12x in fiscal 2021, this translates into a price of $53, which is 8% below the current market price of around $58.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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