) have gained momentum following its strong third quarter results
last week, which included earnings per share that topped the Zacks
Consensus Estimate. This provider of banking products and services
has recorded positive earnings surprises in the last ten quarters
with an average beat of 5.5%. The Zacks #2 Rank (Buy) stock
currently enjoys a dividend yield of 2.3%.
Third Quarter EPS Moves Higher
On October 17, U.S. Bancorp reported third quarter 2012 earnings
per share of 74 cents, topping the Zacks Consensus Estimate of 73
cents by 1.4% and the year-ago earnings of 64 cents by 15.6%. The
upsurge was due mainly to growth in revenue and a lower provision
for credit losses.
Net interest income climbed 6.1% year over year to $2.8 billion.
Non-interest income increased 10.4% to $2.4 billion. However, net
interest margin contracted 6 basis points (bps) to 3.59%.
Additionally, the company's non-interest expenses escalated 5.4% to
$2.6 billion over the same period.
Credit metrics continued to improve at U.S. Bancorp. The provision
for credit losses was $488 million, down 6.0% from the year-ago
quarter with net charge-offs showing a declining trend. Net
charge-offs (excluding covered loans) were 1.04% of average loans
outstanding, down 38 bps year over year.
Rising Earnings Momentum
The past 7 days have seen 17 out of 28 estimates for 2012 move
higher, lifting the Zacks Consensus Estimate by 1.1% to $2.87. For
2013, eleven of 28 estimates moved north over the same time frame,
boosting the Zacks Consensus Estimate by 0.7% to $3.06.
The estimates reflect year-over-year improvements of about 19.0%
for 2012 and 6.7% for 2013.
U.S. Bancorp hiked its dividend by 56% to 19.5 cents early this
year. Currently it pays a quarterly dividend of 19.5 cents per
share, affirming a yield of 2.3%.
The stress test clearance justifies U.S. Bancorp's capital strength
and its solid business model. Reflecting capital strength during
the third quarter, the company was able to return 67% of its
earnings to its shareholders as dividends and share repurchases,
which is within the range of its long-term goal of returning 60% to
80% of earnings.
Shares of U.S. Bancorp currently trade at 11.6x 12-month forward
earnings, an 11.5% premium to the peer group average of 10.4x. Its
price to book ratio of 1.8 is also at a significant premium to the
industry median of 0.8. However, the company has a trailing
12-month ROE of 15.9% compared with the peer group average of 8.1%.
Chart Shows Strength
The stock has been consistently trading above its S&P 500 and
200 days moving average since June 2012.
U.S. Bancorp is one of the strongest banks with rising estimates,
strong growth projections, a decent dividend yield and reasonable
valuation. Moreover, with consecutive dividend increases and
improving credit quality, it offers attractive upside potential.
Headquartered in Minneapolis, Minnesota, U.S. Bancorp provides
various banking products and services. The company was founded in
1863 and conducts business through 3,080 banking offices and 5,085
ATMs. With a market capital of about $63.2 billion, U.S. Bancorp
competes with Wells Fargo & Company (
) among others.
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