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Here's Why It is Worth Holding on to U.S. Bancorp (USB) Stock
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U.S. Bancorp (USB - Free Report) continuously gains from rising loans and deposit balances as well as inorganic growth strategies. Nonetheless, mounting expenses due to investments in technology, lack of diversification of the loan portfolio and depressed margins remain near-term headwinds.
U.S. Bancorp’s average deposits and loans saw a five-year CAGR of 6.8% and 1.8%, respectively, in 2021. We believe that both loan and deposit balances are poised to increase in a recovering economy. Average total deposits witnessed a rising trend in 2021 whereas average total loans declined. Though loan demand has been soft due to the pandemic concerns so far, modest loan growth is likely as the economy recovers and business activities resume in full swing.
USB witnessed organic growth over the last few years, backed by its constant efforts to fortify the existing relationships and improve its customer experience through product launches. A decent lending scenario, aided by economic growth, might support U.S. Bancorp’s net interest income (NII) in the days to come. Also, USB’s diverse revenue streams boost fee income growth.
Driven by a strong liquidity position, U.S. Bancorp has been able to expand via a couple of mergers and acquisitions in the past couple of years. These moves opened up new markets to it and solidified the existing ones. In December 2021, USB’s subsidiary U.S. Bank completed the previously-announced deal to acquire PFM Asset Management through U.S. Bancorp Asset Management. The buyout amplifies U.S. Bank’s presence in the institutional asset management space nationwide and bolsters its position as a dominant provider of varied investment solutions in the country.
In September 2021, U.S. Bancorp had closed the acquisition of Bento Technologies, a FinTech company providing payment and expense management services to small and mid-size businesses. In the same month, USB entered into a definitive agreement to acquire MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group for a cash-and-stock transaction valued at $8 billion. These acquisitions, combined with the ongoing investments in innovative product improvements and services, bolstered USB’s balance sheet and fee-based businesses besides boosting its market share.
However, rising costs are hurting U.S. Bancorp’s bottom-line growth. As USB intends to invest in the technology platform owing to its business initiatives, we believe, such rising costs might weigh on its expense base to some extent in the upcoming quarters.
The bulk of U.S. Bancorp’s loan portfolio — nearly 47% as of Dec 31, 2021 — comprises total commercial loans. Such a lack of diversification can be precarious for USB amid a challenging economy and competitive markets.
Margin pressure for U.S. Bancorp persistently weighs on its financials. Net interest margin (NIM) contracted in 2019, 2020 and 2021 due to a decline in rates. In mid-March 2020, the Federal Reserve had lowered rates to near-zero levels to protect the economy from the coronavirus-induced financial breakdown. Although the Fed signaled rate hikes in the future, the overall low-interest rate environment is expected to keep margins subdued in the near term. Management expects fully taxable equivalent NIM to be sequentially relatively stable in first-quarter 2022.
Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , UBS Group AG (UBS - Free Report) and PCB Bancorp (PCB - Free Report) . At present, both FBIZ and UBS sport a Zacks Rank #1, while PCB carries a Zacks Rank #2 (Buy).
Over the past year, shares of First Business have jumped 56.2%, whereas the stocks of UBS and PCB have rallied 33.4% and 78.1%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.
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Here's Why It is Worth Holding on to U.S. Bancorp (USB) Stock
U.S. Bancorp (USB - Free Report) continuously gains from rising loans and deposit balances as well as inorganic growth strategies. Nonetheless, mounting expenses due to investments in technology, lack of diversification of the loan portfolio and depressed margins remain near-term headwinds.
Shares of this currently Zacks Rank #3 (Hold) player have gained 4.6% in the past six months, underperforming the industry’s growth of 10.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Image Source: Zacks Investment Research
U.S. Bancorp’s average deposits and loans saw a five-year CAGR of 6.8% and 1.8%, respectively, in 2021. We believe that both loan and deposit balances are poised to increase in a recovering economy. Average total deposits witnessed a rising trend in 2021 whereas average total loans declined. Though loan demand has been soft due to the pandemic concerns so far, modest loan growth is likely as the economy recovers and business activities resume in full swing.
USB witnessed organic growth over the last few years, backed by its constant efforts to fortify the existing relationships and improve its customer experience through product launches. A decent lending scenario, aided by economic growth, might support U.S. Bancorp’s net interest income (NII) in the days to come. Also, USB’s diverse revenue streams boost fee income growth.
Driven by a strong liquidity position, U.S. Bancorp has been able to expand via a couple of mergers and acquisitions in the past couple of years. These moves opened up new markets to it and solidified the existing ones. In December 2021, USB’s subsidiary U.S. Bank completed the previously-announced deal to acquire PFM Asset Management through U.S. Bancorp Asset Management. The buyout amplifies U.S. Bank’s presence in the institutional asset management space nationwide and bolsters its position as a dominant provider of varied investment solutions in the country.
In September 2021, U.S. Bancorp had closed the acquisition of Bento Technologies, a FinTech company providing payment and expense management services to small and mid-size businesses. In the same month, USB entered into a definitive agreement to acquire MUFG Union Bank’s core retail banking operations from Mitsubishi UFJ Financial Group for a cash-and-stock transaction valued at $8 billion. These acquisitions, combined with the ongoing investments in innovative product improvements and services, bolstered USB’s balance sheet and fee-based businesses besides boosting its market share.
However, rising costs are hurting U.S. Bancorp’s bottom-line growth. As USB intends to invest in the technology platform owing to its business initiatives, we believe, such rising costs might weigh on its expense base to some extent in the upcoming quarters.
The bulk of U.S. Bancorp’s loan portfolio — nearly 47% as of Dec 31, 2021 — comprises total commercial loans. Such a lack of diversification can be precarious for USB amid a challenging economy and competitive markets.
Margin pressure for U.S. Bancorp persistently weighs on its financials. Net interest margin (NIM) contracted in 2019, 2020 and 2021 due to a decline in rates. In mid-March 2020, the Federal Reserve had lowered rates to near-zero levels to protect the economy from the coronavirus-induced financial breakdown. Although the Fed signaled rate hikes in the future, the overall low-interest rate environment is expected to keep margins subdued in the near term. Management expects fully taxable equivalent NIM to be sequentially relatively stable in first-quarter 2022.
Stocks to Consider
Some better-ranked stocks in the banking space are First Business Financial Services (FBIZ - Free Report) , UBS Group AG (UBS - Free Report) and PCB Bancorp (PCB - Free Report) . At present, both FBIZ and UBS sport a Zacks Rank #1, while PCB carries a Zacks Rank #2 (Buy).
Over the past year, shares of First Business have jumped 56.2%, whereas the stocks of UBS and PCB have rallied 33.4% and 78.1%, respectively.
Over the past 30 days, the Zacks Consensus Estimate for First Business’ current-year earnings has been revised 9% upward, while the same for UBS has moved 8.5% north. Moreover, current-year earnings estimates for PCB Bancorp have moved 14.4% up over the past month.