U.S. Bancorp 1Q Profit Exceeds Estimates, Misses on Revenue

U.S. Bancorp posted better-than-expected 1Q earnings, driven by lower provision for credit losses. Meanwhile, net revenue for the quarter missed analysts’ expectations, impacted by lower net interest and non-interest income. Shares of the bank closed 2.2% lower on April 15.

U.S. Bancorp’s (USB) 1Q earnings more than doubled to $1.45 per share, compared to $0.72 reported in the prior-year period, and beat analysts’ expectations of $0.96. Net revenue of $5.47 billion missed the Street’s estimates of $5.53 billion and plunged 5.2% from the year-ago period.

Net interest income came in at $3.1 billion, down 4.9% year-over-year due to low interest rates, while non-interest income decreased 5.7% to $2.4 billion, mainly impacted by lower mortgage banking revenue and reduction in securities gains. Net interest margin was 2.50% in the quarter, down 41 basis points.

The provision for credit losses was a benefit of $827 million in the quarter. Non-interest expenses inched up 1.9% year-over-year to $3.4 billion due to higher compensation and employee benefits expense. (See U.S. Bancorp stock analysis on TipRanks)

The company reported average loans of $294 billion, down 1.2% from the prior-year quarter. Meanwhile, average deposits surged 17.5% to $426.4 billion.

U.S. Bancorp CEO Andy Cecere said, “Our payments businesses are well-positioned to take advantage of the cyclical recovery and renewed business and consumer activity. In a similar fashion, we will continue to invest in capabilities to create growth, as evidenced by our advances in digital, our alliance with State Farm and our acquisition of talech, an important small business payments capability.”

Following the 1Q results, Oppenheimer analyst Chris Kotowski increased the stock’s price target to $72 (27.8% upside potential) from $68 and maintained a Buy rating.

Kotowski said, “Our seemingly ambitious $72 price target (up $4 from prior) is based on an 80% relative P/E based on 2022 earnings, and we think the company easily deserves that because of its profitability and track record. If management can get the efficiency ratio back into the low 50s, that would be incremental upside.”

Furthermore, “Granted, COVID-19 disruptions and declining rate headwinds have obstructed the quarterly progression of operating leverage and caused a likely minor lapse; however, and we think USB is well poised to continue to outperform and will likely return to its prior trends once trends normalize,” the analyst added.

The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating. That’s based on 11 Buys versus 6 Holds. The average analyst price target of $60.36 implies 7.2% upside potential to current levels. Shares have surged 77.3% over the past year.

U.S. Bancorp scores a 9 of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

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