Which bank stock is the better buy? Synchrony beat estimates, but Ally and U.S. Bancorp also did well.

Three major banks reported earnings on Wednesday: Here’s what they did.

Bank stocks are often the first to start earnings season and are often a good indicator of earnings for a particular quarter.

On Wednesday, three major bank reported earnings: Synchrony Financial, Ally Financial, and U.S. Bancorp. While all met or exceeded estimates, only U.S. Bancorp’s stock price rose.

Is it the best investment among the three banks? Let’s have a look.

U.S. Bancorp stock rises 5%

U.S. Bancorp’s stock rose nearly 5% Wednesday after the fifth largest bank in the United States reported earnings that exceeded analysts’ estimates.

Net interest income fell 9% to $4 Billion, a 4% drop from the previous year. This is the trend for almost all banks who have reported earnings so far. The high interest rate environment dampened loan activity, and deposits costs ate into profits.

U.S. Bancorp (the holding company for U.S. Bank) saw its net income jump 18%, to $1.6 billion or 97 cents a share. The adjusted earnings per share, minus special items, were 98 cents. This exceeded consensus adjusted earnings estimates, which were 95 cents per share.

U.S. Bancorp’s key to success was a 8% drop in expenses from last year, which amounted to $4.2 billion. The lower expenses were primarily due prudent expense management, a focus of operational efficiency and synergies resulting from the acquisition last year of MUFG union Bank. It had 31% less provisions for credit losses than Q2 2023, as its credit quality improved and stabilized.

Ally stock falls while Synchrony remains flat

Ally Financial, a leading auto lender, also exceeded earnings expectations. However, its stock price fell by about 3% in one day on Wednesday.

The revenue dropped by about 4.8% to $1.5 billion in the third quarter, which was in line with expectations. Net income was down 10.6%, to $294 million or 86 cents a share.

Earnings were 97 cents a share on a adjusted basis, excluding special items. This was significantly higher than the estimated earnings of 64 cents a share.

The adjusted earnings of 97 cents a share were similar to Q1 2023. Investors were likely scared by the revised outlook of higher net charge-offs, which is debt that it does not expect to be paid back. The outlook was only slightly better at the low end. The outlook for net charges-offs went from 1.40% to 1,50% to 1.45% to 150%.

Synchrony is a leading provider in store credit cards. Its share price was mostly flat Wednesday. However, it rose by 0.8% following its solid earnings. Synchrony exceeded estimates as revenue rose 13% to $3.7 Billion while net income grew 13% to $643 M, or $1.56 a share.

Its net interest revenue increased by 7% over the past year, despite a 1% decline in its card purchases. In addition, it added or renewed fifteen new clients during the quarter. It was hurt by higher provisions and net charge-offs.

The delinquency rate is expected to decrease in the second half.

Which is the better purchase?

Ally and Synchrony both had a good year. Their stock prices were up by 24% and 36% respectively year-to date (YTD). U.S. Bancorp, with a return of 4.5%, has lagged behind most banks and S&P 500.

Synchrony, the cheapest of the three, is up 36% year-to-date. New federal regulations that cap late fees for credit card payments have created uncertainty about how much they could affect Synchrony’s profit.

Ally has done well, but the credit quality is still a concern. Net charge-offs are expected to rise and the P/E ratio of 18 has increased from 9 at the beginning of the year. Ally could also be negatively affected by the slowdown in car sales that is expected to occur in the second half.

U.S. Bancorp may be the best choice, but you shouldn’t have too high expectations. While the net interest income for this year is down significantly from 2023, it is expected to grow by a mid-single-digit percentage in fiscal year 2024.

The main driver of its earnings will be its cost management. U.S. Bancorp anticipates spending $16,8 billion in 2024 – 11% less than 2023. This should help to keep earnings up. Interest rate reductions could also help. It also has a good credit rating, which should keep credit loss provisions down.

It also has a nice yield of 4.5%. U.S. Bancorp is the best choice of the three bank stocks at the moment.

This site is intended for entertainment only and does NOT offer financial advice.

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