Synchrony, Ally and US Bancorp beat estimates: Which bank stock is the better buy?

Key points

• Synchrony, US Bancorp and Ally Financial all beat second-quarter earnings estimates.

• US Bancorp stock got the biggest boost, rising 5%.

• Which of the 3 stocks is the best buy?

Three major banks reported earnings on Wednesday: Here’s how they fared.

Bank stocks traditionally kick off each earnings season, and often prove to be bellwethers for that particular quarter’s earnings.

On Wednesday, three major banks reported earnings — Synchrony Financial (NYSE: SYF), Ally Financial (NYSE: ALLY), and US Bancorp (NYSE: USB) — and while they all beat estimates, only US Bancorp saw its share price rise.

But is it the best buy among the three bank stocks? Let’s take a look.

US Bancorp shares rise 5%

US Bancorp shares jumped nearly 5% on Wednesday after the nation’s fifth-largest bank reported earnings that beat analysts’ estimates.

Revenue fell 4% year-over-year to $6.9 billion as net interest income slumped 9% to $4 billion. This has been the trend among almost all banks that have reported profits so far, as the high interest rate environment has dampened lending activity and caused deposit costs to weigh on earnings.

But unlike many banks, US Bancorp, the parent company of US Bank, saw its net income soar 18% to $1.6 billion, or 97 cents per share. Adjusted earnings, excluding one-time items, were 98 cents per share. This beat consensus adjusted earnings estimates of 95 cents per share.

Key for US Bancorp was an 8% year-over-year decline in expenses to $4.2 billion. Expenses were lower primarily due to prudent expense management, a focus on operational efficiency and synergies from the acquisition of MUFG Union Bank last year. It had 31% lower provisions for credit losses compared to the second quarter of 2023 as its credit quality stabilized and improved.

Ally shares fall while Synchrony remains stable

Ally Financial, a major auto lender, also beat earnings expectations, but its stock price fell on Wednesday, down about 3% on the day.

Revenue fell about 4.8% in the quarter to $1.5 billion, which was broadly in line with estimates. Net income, however, fell about 10.6% to $294 million, or about 86 cents per share.

On an adjusted basis, excluding one-time items, earnings were 97 cents per share, which was well above estimates of 64 cents per adjusted share.

The 97 cents per adjusted share was roughly the same as the first quarter of 2023. The numbers weren’t bad, but investors were likely spooked by its revised outlook for higher net charge-offs, which is debt it doesn’t expect to be paid off. The outlook was only slightly higher on the low end, as the outlook for net charge-offs increased to 1.45% to 1.50%, from 1.40% to 1.50%.

Finally, Synchrony, a leading provider of store credit cards, was mostly flat on Wednesday, with its stock price up about 0.8% after posting solid earnings. Synchrony beat estimates as revenue rose 13% to $3.7 billion, while net income rose 13% to $643 million, or $1.56 per share.

Its net interest income rose 7% year-over-year as purchase volume on its cards fell just 1% and it added or renewed 15 new customers in the quarter. However, it was impacted by higher provisions for credit losses and net charge-offs.

But its total non-performing loans are trending downwards and net charge-offs are expected to decline in the second half of the year.

Which is the best buy?

Ally and Synchrony have performed well this year, with their share prices up 24% and 36% so far this year, respectively. US Bancorp has been a laggard, returning 4.5%, which has lagged behind most banks and the S&P 500.

Of the three, Synchrony is the cheapest, though it’s already up 36% YTD. But new federal regulations capping late payment fees on credit cards have created some uncertainty about how much that could affect Synchrony’s earnings.

Ally has performed well, but credit quality remains a concern as net charge-offs could rise and its P/E ratio has risen to 18, from 9 at the beginning of the year. In addition, auto sales are expected to slow in the second half of the year, which could negatively impact Ally.

US Bancorp is probably the best bet, though you shouldn’t expect too much. While its net interest income projections for the year are well below 2023, non-interest income is anticipated to see mid-single-digit growth in fiscal 2024.

But the main driver of earnings will be its expense management. US Bancorp expects to spend $16.8 billion in 2024, which is 11% less than in 2023. That should help sustain earnings, and interest rate cuts could help, too. It also has good credit quality, which should keep provisions for credit losses low.

Plus, it has a nice dividend with an attractive 4.5% yield. Of the three bank stocks, US Bancorp would be the best choice right now.