Third quarter results (and guidance) from the large banks underline why I've been preferring banks with meaningful non-spread income sources and/or meaningful operating leverage - in an environment where spread income growth is so difficult, these other areas can drive above-peer pre-provision growth. And so it remains for U.S. Bancorp (USB), where healthy fee-based income and operating leverage helped drive a better-than-expected result for the third quarter.
I was neutral on USB last time around as more of a "slow and steady wins the race" pick, and the shares have since tracked just a bit better than the sector. I like management's more aggressive stance on operating costs and I do still see some options on the M&A side if management wants to go that way. As far as valuation goes, having underperformed most of its peers on a year-to-date basis, I'm seeing a little more relative value here, but I wouldn't call it my favorite idea among larger banks (it's tough to beat JPMorgan (JPM) there).
Read more here:
U.S. Bancorp Focusing On Costs To Offset Spread Income Headwinds
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