U.S. Bancorp Added To Buy List

9/17/2012


  Recent Price
$34
  Dividend
$0.78
  Yield
2.3%
  P/E Ratio
13
  Shares (millions)
1,898
  52-Week Price Range
$34.17 - $21.84

U.S. Bancorp ($34; USB) has rallied 26% this year, outpacing the 19% gain posted by the S&P 500 Financial Sector Index. While loan growth is slowing industrywide, U.S. Bancorp expects steady gains in the September quarter. Analysts target per-share earnings of $0.73, up 14% on 8% higher revenue.

Despite strong share-price action and a favorable outlook, U.S. Bancorp shares trade at just 13 times trailing earnings, a 19% discount to their five-year average and 12% below the median bank stock in the S&P 1500 Index.

Legislation to curb interchange fees on debit cards has put some pressure on results, and U.S. Bancorp does carry modest exposure to subprime borrowers. But its delinquent loans continue to dwindle, and its strong capital position allows it to deploy excess cash to shareholders. The stock, already a Long-Term Buy, is being added to the Buy List.

Business breakdown

U.S. Bancorp operates five business units:

• Wholesale banking and commercial real estate (17% of revenue, 25% of net income for the six months ended June) serves corporate and public-sector clients.

• Consumer and small-business banking (41%, 28%) makes consumer loans.

• Wealth management and securities (7%, 3%) provides retail-brokerage services, insurance, investment management, and financial advice.

• Payment services (23%, 22%) supplies debit and credit cards.

• Treasury and corporate support (11%, 22%) includes the bank's investment portfolios and capital-management and asset-securitization operations.

Net income jumped 22% in the first half of 2012, helped by the release of provisions for credit losses and strong loan growth. Revenue has risen in 12 straight quarters.

Total average loans rose 7% in the six months ended June, and average deposits climbed 11%. The rise in loans and deposits drove net interest income 7% higher to $5.40 billion in the first half of the year. Noninterest income grew 11% to $4.61 billion, with mortgage-banking revenue more than doubling. At the same time, nonperforming assets have shrunk to less than 1% of total assets.

The $216 billion loan portfolio consists of 28% commercial, 22% retail (including home-equity, automobile, and student loans), 18% residential mortgages, 17% commercial real estate, and 8% credit card.

Demand for commercial loans is rising, and residential mortgages are trending higher as homeowners refinance to lock in lower interest rates. Credit-card loans are declining as consumers trim spending and pay down balances. Subprime borrowers account for $1.7 billion — or 4% — of U.S. Bancorp's residential mortgages.

With the Federal Reserve's blessing, U.S. Bancorp hiked its quarterly dividend 56% in March and approved a buyback program to lower the share count by 100 million shares, roughly 5%. U.S. Bancorp plans to distribute 30% to 40% of earnings in dividends in the future; the current dividend represents 29% of trailing earnings. An annual report for U.S. Bancorp is available at 800 Nicollet Mall, Minneapolis, MN 55402; 651-466-3000; www.usbank.com.

U.S. BANCORP
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '12
0.71
vs.
0.60
+ 6%
32.98
-
28.58
13 - 11
Mar '12
0.67
vs.
0.52
+ 7%
32.23
-
27.21
13 - 11
Dec '11
0.69
vs.
0.49
+ 1%
27.58
-
21.84
12 - 10
Sep '11
0.64
vs.
0.45
+ 4%
27.17
-
20.10
13 - 10
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
21.14
2.46
0.43
28.94
-
20.10
12 - 8
2010
20.52
1.73
0.20
28.43
-
20.44
16 - 12
2009
19.49
0.97
0.58
25.59
-
8.06
26 - 8
2008
19.14
1.61
1.70
42.23
-
20.22
26 - 13
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
93
93
67
50
99
90
82

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.
   NM Not Meaningful.


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