U.S. Bancorp’s stock (NYSE: USB) has lost roughly 24% YTD as compared to the 20% drop in the S&P500 index over the same period. Further, at its current price of $43 per share, it is trading 19% below its fair value of $53 – Trefis’ estimate for U.S. Bancorp’s valuation. The bank outperformed the street expectations in the third quarter of 2022, with revenues increasing by 7% y-o-y to $6.33 billion. It was driven by a 21% growth in net interest income (NII, partially offset by an 8% drop in noninterest revenues. The wholesale banking (corporate & commercial banking), consumer banking, and wealth management segments were the main contributors to NII growth, mainly driven by higher interest rates and an increase in outstanding loan balances. On the flip side, the noninterest revenues primarily suffered due to lower mortgage banking and deposit service charges. Further, provisions for credit losses increased from -$163 million to $362 million in the quarter. Overall, the adjusted net income was reduced by 11% y-o-y to $1.72 billion.
The bank’s total revenues grew 5% y-o-y to $17.9 billion in the first three quarters of 2022. It was primarily due to an 11% rise in the net interest income, partially offset by a 4% decrease in noninterest revenues. Altogether, the adjusted net income fell by 23% y-o-y to $4.65 billion. The profitability numbers suffered because of an unfavorable increase in noninterest expenses as a % of revenues and a build-up in provisions for credit losses.
Moving forward, we expect the net interest income to drive the fourth quarter results. All in all, U.S. Bancorp’s revenues are estimated to touch $24.3 billion in FY2022. Additionally, USB’s adjusted net income margin is expected to normalize around 26%, leading to an adjusted net income of $6.4 billion. This coupled with an annual EPS of $4.31 and a P/E multiple of just above 12x will lead to a valuation of $53.
|S&P 500 Return||-6%||-20%||71%|
|Trefis Multi-Strategy Portfolio||-6%||-23%||212%|
 Month-to-date and year-to-date as of 12/23/2022
 Cumulative total returns since the end of 2016