U.S. Bancorp (
) may be one of the safest bets for risk-averse investors in the
financial sector owing to its traditional banking- focused business
model. But that in no way means that the bank is completely closed
to new ideas. On the contrary, U.S. Bancorp is one of the
forerunners among financial institutions when it comes to investing
in renewable energy projects - both solar- and wind-driven. And
while the industry is not very keen on the solar sector since it
went from boom to bust over recent years, the country's fifth
largest commercial bank seems to believe there is quite some value
yet to be unlocked here - something that has clearly prompted it to
commit over a billion dollars to renewable projects since 2008.
Quite recently, the bank announced its decision to invest $100
million along with SunPower (
) to install 3,000 solar-power systems across the country.
In our opinion, there is considerable merit in U.S. Bancorp's
decision to pursue this investment option as it allows the bank to
create a niche market for itself among bigger competitors like Bank
of America (
) while at the same time enjoying the tax credits benefits the
government offers on these investments.
We maintain a
$35 price estimate for U.S. Bancorp's stock
, which is less than 5% ahead of the current market price.
See our complete analysis for U.S. Bancorp
U.S. Bancorp has invested $930 million in renewable energy
projects since 2008. And the bank's enthusiasm has been largely
unaffected over the recent years despite the solar sector being in
doldrums, notably the bankruptcy of Solyndra and Evergreen Solar
among others. Between 2008 and 2011, U.S. Bancorp invested $680
million in solar and wind projects, with well over $300 million of
this coming in 2011 alone. The investment figure for 2012 was $250
million. And with the recently announced joint investment with
SunPower, U.S. Bancorp has set aside over a billion dollars in less
than five years for such projects.
So what does U.S. Bancorp have to gain here?
First and foremost, the renewable energy sector may be weak at
this time, but it is definitely not dead. So even if there are only
a few projects actually being undertaken, they are a good business
nonetheless. After all, renewable energy projects bring the unique
advantage of being able to pay for themselves within a short span
of time - something that reduces the lending risks involved.
Secondly, the government's tax credit scheme still gives
investors a 30% credit on their investment - something that U.S.
Bancorp can put to good use to reduce its tax bills. To put things
in perspective, for a billion dollar investment, we are talking
about a $300 million tax credit. Spreading this across five years,
that's $60 million in tax savings each year - not a bad thing by
And finally, the expertise U.S. Bancorp is gaining in renewable
energy investment will become a source of strength and a major
differentiating factor for it further down the line once the
outlook for the renewable energy sector improves.
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