Credit rating agency, Standard & Poor's (S&P), ushered
in good news for
), by raising its long-term issuer credit rating to 'A+' from 'A'
and affirming its 'A-1' short-term issuer credit rating. Moreover,
the rating agency has raised its issuer credit ratings on the
company's operating subsidiaries to 'AA-' from 'A+' and short-term
issuer credit rating to 'A-1+' from 'A-1'. The outlook is stable.
FIFTH THIRD BK (FITB): Free Stock Analysis
US BANCORP (USB): Free Stock Analysis Report
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Moreover, the stand-alone credit profile (SACP) at the operating
level remains 'a+' since the upgrade is based on an additional
notch to the issuer credit rating. As U.S. Bancorp's SACP did not
alter, ratings on its preferred stock and hybrids also remain same.
Notably, as a result of the company's impressive performance over
the past four years compared to its peers, the rating agency
factored in an additional notch to the company's issuer credit
The rating upgrade reflects an optimistic outlook for U.S. Bancorp.
According to the rating agency, the action depicts the company's
stable revenue and earnings, both during and after the financial
Previously, the rating agency predicted home prices to continue to
fall. This could have adversely affected U.S. Bancorp's credit
quality. However, with the rating agency's recent expectations that
home price declines are approaching a floor, the company is
expected to continue to outperform its peers, with support from its
improving credit trends. Its reserves to nonperforming loans, which
are higher compared to its peer group level, would enable it to
continue its profitability trend.
U.S. Bancorp's strong financial condition with solid capital levels
is impressive. It adheres to a conservative growth strategy and its
exposure to mortgage putbacks, litigation and eurozone exposure are
The Stable outlook assigned by the rating agency reflects its
expectations for sustained revenue and earnings at U.S. Bancorp
coupled with improvement in credit quality. The company's earnings
quality is likely to remain high based on its core earnings power
rather than benefits from large non-recurring items.
The rating upgrades are valuable for U.S. Bancorp as they play a
major role in preserving investor confidence in the stock and help
boost its creditworthiness in the market.
We also remain encouraged by U.S. Bancorp's attractive core
franchisee and diverse revenue stream. The company's robust capital
position, improving credit quality and increase in lending
activities also augur well. Rather than opting for big
acquisitions, the company has made efforts to make strategic but
small acquisitions to augment its business. Moreover, the company's
capital redeployment efforts gives a boost to investors'
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
U.S. Bancorp currently retains its Zacks #2 Rank, which translates
into a short-term Buy rating. Considering its fundamentals, we have
a long term Neutral recommendation on the stock. One of its closest
Fifth Third Bancorp
) also has a Zacks #2 Rank.