U.S. Bancorp

Earnings estimates for U.S. Bancorp (USB - Analyst Report) have been advancing since this major regional bank posted strong second quarter results, which included year-over-year earnings growth of 18.3%. The stock hit its 52-week high on July 19, 2012 and achieved a Zacks #2 Rank (Buy) on July 21. It currently enjoys a decent dividend yield of 2.3%.

Second Quarter EPS Moves Higher

On July 18, U.S. Bancorp reported second quarter 2012 net earnings per share of 71 cents, topping the Zacks Consensus Estimate of 69 cents by 2.9% and the year-ago earnings of 60 cents by 18.3%. The upsurge was mainly aided by growth in revenue and a lower provision for credit losses.

Net interest income climbed 6.6% to $2.7 billion. Non-interest income increased 9.7% to $2.4 billion. However, net interest margin contracted 9 basis points (bps) to 3.58%. Additionally, the company's non-interest expenses escalated 7.3% to $2.6 billion over the same period.

Credit metrics continued to improve at U.S. Bancorp. The provision for credit losses was $470 million, down 17.8% from the year-ago quarter with net charge-offs showing a declining trend. Net charge-offs (excluding covered loans) were 1.04% of average loans outstanding, down 59 bps year over year.

Rising Earnings Estimate Revisions

The past 7 days have seen 21 out of 27 estimates for 2012 move higher, pushing the Zacks Consensus Estimate up by 2.2% to $2.81. For 2013, eighteen out of 27 estimates moved north over the same time frame, helping the Zacks Consensus Estimate advance 1.7% to $3.02.

The Zacks Consensus Estimate for 2012 reflects a year-over-year improvement of about 16.8%, while the Zacks Consensus Estimate for 2013 indicates a year-over-year growth of 7.1%.

Dividend Payment

U.S. Bancorp slashed its quarterly dividend from 42.5 cents per share to 5 cents early in 2009. But it raised it to 12.5 cents in early 2011. Moreover, the dividend was again hiked by 56% to 19.5 cents early this year.

Currently the company pays a quarterly dividend of 19.5 cents per share, affirming a yield of 2.3%.

The stress test clearance justifies U.S. Bancorp’s capital strength and its solid business model. As a matter of fact, year-to-date, the company has returned 62% of its earnings to shareholders, which is within the range of its long-term goal of returning 60% to 80% of earnings.

Reasonable Valuation

Shares of U.S. Bancorp currently trade at 11.9x 12-month forward earnings, a 19% premium to the peer group average of 10.0x. Its price to book ratio of 1.9 is also at a significant premium to the industry median of 0.8. However, the company has a trailing 12-month ROE of 15.9% compared with the peer group average of 9.2%.

Chart Shows Strength

The stock has been consistently trading above its 200 days moving average since December 2011.

U.S. Bancorp is one of the strongest banks with rising estimates, strong growth projections, a decent dividend yield and reasonable valuation. Moreover, with consecutive dividend increases and improving credit quality, it offers attractive upside potential.

Headquartered in Minneapolis, Minnesota, U.S. Bancorp provides various banking products and services. The company was founded in 1863 and conducts business through 3,085 banking offices and 5,053 ATMs. With a market capital of about $63.4 billion, U.S. Bancorp competes with Wells Fargo & Company (WFC) among others.