Weak Asset Sensitivity Offsetting Improving Efficiency At U.S. Bancorp

Value-based calls on bank stocks don’t really lend themselves to quick outperformance, and U.S. Bancorp’s (USB) shares continue to muddle along as the bank works through some operating challenges in 2018. Although the shares have done a little better over the past three months, they continue to lag the peer group on a year-to-date basis, and even Wells Fargo (WFC) has done better on a trailing 12-month basis.

Bulls will point to U.S. Bancorp’s strong historical results and the company’s ongoing status as one of the most profitable (in ROA/ROE/ROTCE terms) large banks in the country, not to mention the strong fee-generating businesses and the opportunity to use M&A to add more scale. All of that is true, but the performance gap has been shrinking, with rivals like PNC Financial (PNC) stepping up their game in recent years. I continue to believe that U.S. Bancorp is undervalued so long as it can generate mid-single-digit earnings growth, but this is a name that’s going to take time to generate alpha.

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Weak Asset Sensitivity Offsetting Improving Efficiency At U.S. Bancorp