U.S. Bancorp Shows Stability in Fundamentals - Analyst Blog

On Jun 2, 2014, we issued an updated research report on U.S. Bancorp ( USB ). This regional bank recently reported decent first-quarter 2014 results. Results were aided by growth in average loans and deposits, partially offset by a declining top line and increasing non-interest expenses. Though the company shows stability in its fundamentals, we remain cautious due to the current economic uncertainty across the industry.

U.S. Bancorp reported first-quarter 2014 earnings of 73 cents per share, in line with the Zacks Consensus Estimate. Average total loans climbed 6% year over year, while average total deposits were up 5.1% from the prior-year quarter.

The company exhibited a decent performance in the last 4 quarters with an average beat of 1.33%.

U.S. Bancorp has made a number of strategic bank acquisitions in the past years, which opened new markets to it and fortified existing markets. In Jan 2014, the company purchased the Chicago branch franchise owned by RBS Citizens Financial Group, a subsidiary of The Royal Bank of Scotland Group plc. ( RBS ). The deal is expected to aid U.S. Bancorp to overcome the financial complexities in its internal rate of return and enhance earnings per share.

We view U.S. Bancorp as a sound asset for yield-seeking investors. Reflecting capital strength during the first quarter, the company was able to return 67% of its earnings to shareholders. Following the Federal Reserve's approval in Mar 2014, the company's board of directors approved a share repurchase program up to $2.3 billion through Mar 2015. Further, in Jun 2014, the company plans to hike its quarterly dividend by 6.5% to 24.5 cents per share. Such a shareholder-friendly approach inspires investors' confidence in the stock.

Despite strong fundamentals, we believe there are certain issues that may create pressure on the company's financials in the near term. These include absence of a credible improvement in the mortgage market, declining net interest margin due to the low interest rate environment and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 30 days remained stable at $3.10 and $3.36 per share, for 2014 and 2015, respectively. Hence, U.S. Bancorp currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better ranked finance stocks include BofI Holding, Inc. ( BOFI ) and Western Alliance Bancorporation ( WAL ). Both stocks carry a Zacks Rank #1 (Strong Buy).

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US BANCORP (USB): Free Stock Analysis Report

ROYAL BK SC-ADR (RBS): Free Stock Analysis Report

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BOFI HLDG INC (BOFI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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