US Bancorp Should Surprise Naysayers
Buy calls as big bank tops low expectations
By Chris Johnson and Jon Lewis
Earnings season can turn from famine to feast in a hurry for options trading investors. This is the first “official” week of earnings season, thanks to Alcoa (NYSE: AA). But only 11 S&P 500 companies participate in this inaugural week. Next week is a different story, as around 100 S&P 500 names are on the docket. And it’s just a four-day week, with the markets closed on Friday to observe Good Friday.
With so much to choose from, we’ve narrowed down our choices to a select few, many of which we’ll use in our Winning Edge service. One name we like is U.S. Bancorp (NYSE: USB), which reports on Tuesday (April 19) before the open. The company hasn’t missed an earnings estimate in more than two years. Analysts expect earnings to grow 44% from a year ago, which is less than half the average growth logged over the past four quarters. So expectations are muted.
On Wednesday, USB, along with nine other major banks, was cited by the Fed for its deficient mortgage practices. The stock dropped a little on the news, but has found solid support at the 26 level. In fact, this level has defined a bottom for the shares several times going back to December.
U.S. Bancorp (NYSE: USB)
Sentiment is mostly mixed and shouldn’t be much of a factor. But it does tell us that expectations are hardly elevated, which allows an easier path to the upside should earnings come in on the mark.
Another plus for the stock is that it has gained ground in the two to three weeks following the past three reports. With expectations reserved and solid chart support in place, the pressure on earnings to impress is not quite as heavy as what we saw with JPMorgan (NYSE: JPM) earlier this week. Also, the recent Fed crackdown should already be priced into the shares.
USB option premiums are hardly rich, so you should be able to buy the USB May 26 Call for well under a buck.
Categories: Stocks, Trends, Patterns, Indicators