Is U.S. Bancorp Stock Attractive At The Current Levels?

+7.55%
Upside
49.10
Market
52.81
Trefis
USB: U.S. Bank logo
USB
U.S. Bank

U.S. Bancorp’s stock (NYSE: USB) has lost roughly 8% YTD as compared to the 14% drop in the S&P500 index over the same period. Further, at its current price of $52 per share, it is trading 18% below its fair value of $63 – Trefis’ estimate for U.S. Bancorp’s valuationThe bank posted better than expected results in the first quarter, with total revenues of $5.6 billion – slightly below the year-ago period. Its payment services revenues grew 5% y-o-y, followed by a 9% rise in the wealth management & investment services division. However, the growth was almost offset by a 5% y-o-y drop in consumer and business banking revenues. While the overall net interest income of the firm grew 4% y-o-y, non-interest revenues were only marginally above the year-ago level. The NII benefited from higher outstanding loan balances and an increase in noninterest-bearing deposits. USB’s profitability took a hit in the quarter – adjusted net income decreased 33% y-o-y to $1.5 billion. This was because of an unfavorable increase in the provisions for credit losses from -$827 million to $112 million. Notably, the provisions were raised to counter an upturn in credit risk due to supply chain concerns, high inflation, and the Russia-Ukraine conflict. 

The bank’s total revenues decreased 2% y-o-y to $22.7 billion in 2021. It was mainly due to a 3% decline in the NII driven by a lower interest rate environment and a drop in outstanding loan balance. Markedly, the NII contributes around 55% of the total revenues. Further, non-interest revenues suffered a 2% y-o-y drop, primarily due to a 34% decrease in mortgage banking revenues. Despite a meager growth in the top line, the firm managed to report a 65% y-o-y jump in the adjusted net income to $7.6 billion. This was due to a favorable decrease in the provisions for credit losses.

The central banks across the world have started to hike the benchmark interest rates, to manage the record-high inflation. Notably, the Federal Reserve has increased the interest rates twice in 2022 – first by 0.25% and then by 0.50%. Moreover, rates are likely to improve over the coming months, benefiting the NII of U.S. Bancorp. Altogether, U.S. Bancorp revenues are forecast to touch $25.2 billion in FY2022. Additionally, USB’s adjusted net income margin is expected to normalize at around 25%, leading to an adjusted net income of $6.4 billion. This coupled with an annual EPS of $4.35 and a P/E multiple of just above 14x will lead to the valuation of $63.

Relevant Articles
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  3. Is U.S. Bancorp Stock Undervalued?
  4. U.S. Bancorp Stock Outperformed S&P500 Over One Month, Is It A Buy?
  5. Is U.S. Bancorp Stock Fairly Valued?
  6. U.S. Bancorp Stock Has Limited Upside

Here you’ll find our previous coverage of U.S. Bancorp stock, where you can track our view over time.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Jun 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 USB Return -2% -8% 1%
 S&P 500 Return -1% -14% 83%
 Trefis Multi-Strategy Portfolio 0% -19% 219%

[1] Month-to-date and year-to-date as of 6/2/2022
[2] Cumulative total returns since the end of 2016

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