U.S. Bancorp Stock Is Trailing S&P500 By 17% YTD, What’s Next?

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Trefis
USB: U.S. Bank logo
USB
U.S. Bank

U.S. Bancorp’s stock (NYSE: USB) has lost approximately 6% YTD as compared to the 11% gain in the S&P500 index over the same period. Further, it is currently trading at $41 per share, which is 15% below its fair value of $48 – Trefis’ estimate for U.S. Bancorp’s valuation.

Amid the current financial backdrop, USB stock has seen a decline of 10% from levels of $45 in early January 2021 to around $40 now, vs. an increase of about 40% for the S&P 500 over this roughly 3-year period. Notably, USB stock has underperformed the broader market in each of the last 3 years. Returns for the stock were 21% in 2021, -22% in 2022, and -1% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that USB underperformed the S&P in 2021, 2022, and 2023.  In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could USB face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

The bank posted mixed results in the first quarter of 2024, with earnings beating the estimates but revenues missing the mark. It reported total revenues of $6.72 billion – down 6% y-o-y, primarily due to a 14% drop in the net interest income (NII), partially offset by an 8% rise in the noninterest revenues. The NII mainly suffered because of a decline in total loans and higher interest rates on deposit mix and pricing. On the cost front, provisions for credit losses rose by 30% y-o-y to $553 million. Further, noninterest expenses as a % of revenues witnessed an unfavorable increase from 63.5% to 66.4% in the quarter. Overall, the adjusted net income decreased 24% y-o-y to $1.2 billion. 

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The bank’s top line grew 16% y-o-y to $28 billion in FY 2023. While all the segments witnessed positive growth, the bank mainly benefited from a 20% increase in consumer & business banking units followed by a 17% rise in the wealth, corporate, commercial & institutional banking segments. That said, the impact of positive revenue growth was more than offset by a 27% jump in noninterest expense and a 15% increase in the provisions figure. Altogether, the adjusted net income decreased 8% y-o-y to $5.05 billion.

Moving forward, we expect the same trend to continue in the second quarter. Overall, U.S. Bancorp’s revenues are forecast to remain around $27.4 billion in FY2024. Additionally, USB’s annual GAAP EPS is likely to touch $3.83. This coupled with a P/E multiple of just below 13x will lead to a valuation of $48.

 Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 USB Return 1% -6% -20%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 7% 7% 657%

[1] Returns as of 5/21/2024
[2] Cumulative total returns since the end of 2016

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