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Analyst Blog

On Sep 4, 2013, we reiterated our long-term recommendation on U.S. Bancorp (USB - Analyst Report) at Neutral based on its attractive core franchisee, diverse revenue streams and strong capital base. However, regulatory issues coupled with fundamental pressures on the banking sector might act as deterrents to the company’s fundamentals.

Why Neutral?

U.S. Bancorp has yet again delivered an encouraging earnings performance in second-quarter 2013. Aided by reduced non-interest expenses and a lower provision for credit losses, the company reported earnings per share of 76 cents, up from 71 cents reported in the year-ago period. However, results came in line with the Zacks Consensus Estimate.

U.S. Bancorp remains one of the most profitable large-cap banks in the industry, with a return on equity (ROE) of 16.1% and return on assets (ROA) of 1.70% in second-quarter 2013. Both ratios were within the company's long-term goal of achieving normalized ROA in the range of 1.6% to 1.9% and an ROE between 16% and 19%. With a wide range of product offerings, the company is well poised for organic growth.

However, a sluggish economy that adversely affected consumer and business spending has impacted a number of fee-based categories over the last several quarters. Though we expect the fee-based category to grow over time with an improvement in the economy, we think that the progress will be tardy with the economy recovering at a slow pace.

For U.S. Bancorp, the Zacks Consensus Estimates for 2013 and 2014 remained stable at $3.03 and $3.21 per share, respectively, over the last 30 days. Hence, U.S. Bancorp carries a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Some major regional banks that are worth considering include BankUnited, Inc. (BKU - Analyst Report) with a Zacks Rank #1 (Strong Buy), while The PNC Financial Services Group, Inc. (PNC - Analyst Report) and Wells Fargo & Company (WFC - Analyst Report) carry a Zacks Rank #2 (Buy).

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