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Strategic Moves Support U.S. Bancorp (USB), Cost Woes Prevail

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U.S. Bancorp (USB - Free Report) can be a solid bet now, backed by its diversified product mix and solid credit quality. Though the company displays capital strength and a strong retail franchise, escalating costs, lack of diversification in loan portfolio and low-interest rate environment remain concerns.

Strategic moves and business diversification have aided the company to gain 30.8% in the past six months compared with 22.3% growth recorded by the industry.



Further, the company’s earnings estimates have moved upward, for the current and next year, respectively, over the past 30 days. As a result, the stock carries a Zacks Rank #3 (Hold), at present.

U.S. Bancorp has been witnessing solid loan and deposit growth in the past few years, aided by the bank’s continued efforts to strengthen its existing ties. It has also been gaining customers as well as market share. Notably, the company’s average deposits and loans reflected a 5-year CAGR of 4.8% and 3.8%, respectively, in 2019. Both metrics continued to improve in the first nine months of 2020 as well. Though loan demand has been soft due to the pandemic, the same is expected to improve once the economy recovers and business activities resume in full swing.

Overall, U.S. Bancorp has made a number of strategic bank acquisitions in the past few years. These acquisitions have opened up new markets for the bank as well as fortified the existing markets. These acquisitions, combined with the ongoing investments in innovative product enhancements, services and people, have fortified the company’s balance sheet and fee-based businesses besides increasing market share.

Though the weakness in the credit card segment impacted some of the credit metrics, it has witnessed significant improvement in the past few years. Allowance for credit losses and non-performing assets declined as economic conditions improved with some quarterly volatility. Though the metrics deteriorated in the first three quarters of 2020 in response to the coronavirus fallout, credit quality is anticipated to improve with the recovery of the economy in the upcoming quarters.

However, rising costs is a concern for U.S. Bancorp. The company’s non-interest expenses witnessed a CAGR of 4.3% over the last five years (2015-2019), with the trend continuing in the first nine months of 2020. Further, as the company continues to invest in technology platform owing to its business initiatives we believe, such costs might weigh on the expense base to some extent in the upcoming quarters.

Major part of U.S. Bancorp’s loan portfolio — nearly 50% as of Sep 30, 2020 — comprises total commercial loans (commercial and commercial real estate lending). Such high exposure to commercial loans depicts lack of diversification, which can be risky for the company amid a challenging economy and competitive markets.

Stocks to Consider

Evercore Inc (EVR - Free Report) has witnessed upward earnings estimate revisions for 2020 in the past 30 days. Moreover, this Zacks #1 Ranked stock has gained 42% in three months’ time. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cowen Group, Inc.’s (COWN - Free Report) current-year earnings estimate moved north in 30 days’ time. Further, the company’s shares have appreciated 34.6% over the past three months. At present, it holds a Zacks Rank of 2 (Buy).

Interactive Brokers Group, Inc. (IBKR - Free Report) has witnessed upward earnings estimate revision for the ongoing year in the past 30 days. This Zacks #2 Ranked stock has gained 0.9% in the past three months.

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