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U.S. Bancorp (NYSE: USB) is scheduled to report its fiscal Q2 2021 results on Thursday, July 15. We expect U.S. Bancorp to top the consensus estimates for revenues and earnings. While the bank reported better than expected profit figures in the last quarter, its revenues were down on a year-on-year basis. This was mainly due to a drop in net interest income and mortgage banking revenues. That said, the bank’s profitability figures received a big boost in the quarter due to a reduction in provisions for credit losses. We expect the NII to continue to suffer in the second quarter, although non-interest income is likely to increase due to a recovery in consumer demand. Further, the provisions are likely to see a further decrease.

Our forecast indicates that U.S. Bancorp’s valuation is around $60 per share, which is 5% above the current market price of around $58. Look at our interactive dashboard analysis on U.S. Bancorp’s pre-earnings: What To Expect in Q2? for more details.

(1) Revenues expected to be ahead of consensus estimates in Q2

Trefis estimates U.S. Bancorp’s fiscal Q2 2021 revenues to be around $5.80 billion, 3% above the $5.62 billion consensus estimate. The firm’s revenues of $23.2 billion for the full year 2020 were just ahead of the 2019 figure. It posted a 6% y-o-y increase in non-interest revenues, primarily driven by growth in commercial products and mortgage banking revenues. However, this growth was almost offset by a 2% drop in NII, which contributes roughly 55% of the top-line. The NII suffered due to lower loan balances and interest rate headwinds. The same trend continued in the first quarter of 2021 as well, with USB reporting a 5% decline in NII. Further, the company witnessed lower non-interest income in the quarter, mainly due to lower mortgage banking revenues. That said, we expect the recovery in non-interest income, driven by improvement in consumer demand, to drive the second-quarter results, partially offset by lower net interest income.

Moving forward, we expect the outstanding loan balances and card & payment services transaction volumes to see some recovery in the current year, with improvement in the consumer spending levels. However, the interest rates are unlikely to see an immediate revival to the pre-Covid-19 levels. Overall, we expect the bank’s revenues to remain around $22.9 billion in FY2021 – slightly below the 2020 figure. 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 Q2 2021 adjusted earnings per share is expected to be $1.18 per Trefis analysis, almost 4% above the consensus estimate of $1.14. The bank’s net income decreased 30% y-o-y to $4.6 billion in 2020. A similar pattern was witnessed among all its peers with sizable core-banking operations. It was due to a significant build-up in provisions for credit losses, to compensate for the increased risk of loan defaults. As a result, the bank’s EPS reduced from $4.16 to $3.06 in the year. That said, the bank has decreased its provisions over the recent quarters, including a year-on-year change from $993 million in the year-ago period to -$827 million in the first quarter. We expect the same trend to continue in the FY2021 Q2 results.

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A drop in provisions and lower non-interest expenses are likely to result in a net income of $6.6 billion in FY2021 – up 43% y-o-y. This will lead to an EPS of around $4.50 in the year.

(3) Stock price estimate 5% higher than the current market price

Going by our U.S. Bancorp valuation, with an EPS estimate of around $4.50 and a P/E multiple of just above 13x in fiscal 2021, this translates into a price of $60, which is 5% above 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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