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

Key points

• Synchrony, U.S. Bancorp, and Ally Financial all beat earnings estimates for Q2.

• U.S. Bancorp stock got the biggest lift, rising 5%.

• Which of the 3 stocks in the best buy?

Three big banks posted earnings Wednesday: Here’s how they did.

Bank stocks traditionally kick off every earnings season, and they often prove to be bellwethers for earnings for that particular quarter.

On Wednesday, three major banks posted earnings — Synchrony Financial (NYSE: SYF), Ally Financial (NYSE: ALLY), and U.S. Bancorp (NYSE: USB) — and while all beat estimates, only U.S. Bancorp saw its stock price jump.

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

US Bancorp stock rises 5%

U.S. Bancorp stock jumped nearly 5% on Wednesday after the nation’s fifth largest bank reported earnings that bested analysts estimates.

Revenue fell 4% year-over-year to $6.9 billion as net interest income plunged 9% to $4 billion. This has been the trend among almost all banks that have reported earnings thus far, as the high interest rate environment has put a damper on loan activity and caused deposits costs to eat into profits.

But unlike a lot of banks, U.S. Bancorp, the holding company for U.S. Bank, saw net income soar 18% to $1.6 billion, or 97 cents per share. Adjusted earnings, minus one-time items, was 98 cents per share. This topped consensus adjusted earnings estimates of 95 cents per share.

The key for U.S. Bancorp was an 8% decline year-over-year 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 Q2 2023 as its credit quality stabilized and improved.

Ally stocks falls while Synchrony stays flat

Ally Financial, one of the leading auto lenders, also beat earnings expectations, but its stock price fell on Wednesday, down about 3% on the day.

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

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

The 97 cents per share adjusted earnings were about the same as Q1 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 repaid. The outlook was only slightly higher at 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 share price ticking up about 0.8% after it posted solid earnings. Synchrony beat estimates as revenue climbed 13% to $3.7 billion while net income rose 13% to $643 million, or $1.56 per share.

Its net interest income increased 7% year-over-year, as purchase volume on its cards was only down 1% and it added or renewed 15 new clients in the quarter. However, it was hurt by higher provisions for credit losses and net charge-offs.

But its delinquency total are trending lower and net charge-offs are expected to decline in the second half of the year.

Which is the better buy?

Ally and Synchrony have both performed well this year, with their stock prices up 24% and 36% year-to-date (YTD), respectively. U.S. Bancorp has lagged, with a 4.5% return, which has trailed most banks and the S&P 500.

Of the three, Synchrony is the cheapest, even though it is already up 36% YTD. But new federal regulations capping late fees on credit card payments have created some uncertainty as to how much it could eat into Synchrony’s profits.

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 start of the year. Also, car sales are anticipated to slow in the second half of the year, which could negatively impact Ally.

U.S. Bancorp is probably the best option, even though you shouldn’t expect too much. While its net interest income projections for the year are well down from 2023, noninterest income is anticipated to see mid-single digit growth in fiscal year 2024.

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

In addition, it has a nice dividend with an attractive 4.5% yield. Of the three bank stocks, U.S. Bancorp would be the best option right now.