We have recently reaffirmed our long-term Neutral recommendation
) based on its solid fundamentals and strategic acquisitions amidst
the current stressed operating environment and limited exposure to
various critical issues that have crippled a number of its
Aided by growth in revenue and lower provision for credit losses,
U.S. Bancorp's second quarter 2012 earnings per share of 71 cents
outpaced the Zacks Consensus Estimate of 69 cents. Top line was
supported by growth in net interest income and fee-based revenue.
Yet, on the negative side, expenses advanced and to some extent,
dwarfed the positive impact that the top-line growth bore on the
We believe that investors should not be disappointed with their
investments in U.S. Bancorp over the long term, given its
attractive core franchisee and diverse revenue stream. Stable
revenue and earnings both pre-and-post financial crisis periods is
impressive. Also, it is encouraging to note that the company has
fewer exposures to mortgage repurchases and litigation issues than
Solid capital position, improving credit quality and increase in
lending activities augur well. Additionally, U.S. Bancorp has made
several strategic bank acquisitions in the past years, which have
opened new markets to it, fortified existing markets and augmented
its scale of business.
Moreover, U.S. Bancorp has a well-balanced business model, with
non-interest revenue representing nearly half of its total revenue.
Its results have been driven by a combination of acquisitions and
organic growth. This diversification in business is expected to
continue to help maintain growth in an otherwise unfavorable
operating environment. Moreover, it has announced consecutive
dividend increases over the past three years with the latest hike
of 56% being announced in March 2012.
Yet, a tepid economic recovery, regulatory issues along with the
expectation of continued low interest rate environment are
projected to limit the stock's upside potential in the upcoming
Though the company is expected to experience a growth in loans
in the rest of 2012, we believe that owing to the company's cash
position and the current low interest rate environment, which is
anticipated to continue in the next several quarters, net interest
margin is likely to remain under pressure going forward. And hence,
our Neutral stance is reaffirmed.
FIFTH THIRD BK (FITB): Free Stock Analysis
M&T BANK CORP (MTB): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
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However, the shares of U.S. Bancorp, which compete with
Fifth Third Bancorp
M&T Bank Corp.
) among others, retain a Zacks #2 Rank, which translates into a
short-term Buy rating over the short term.