U.S. Bancorp: Valuation And A Vanishing Deal Overhang Should Help Address Underperformance

Once one of the most well-regarded banks among the large-caps, U.S. Bancorp (NYSE:USB) hasn’t seen the same enthusiasm from investors in recent years and the shares have lagged their peers not only over the last year, but the last three, five, and 10 years as well (as well as since my last update). The bank doesn’t stand out versus its peers on metrics like ROTCE and core pre-provision profit margins like it once did, but the bank is still solidly above-average in most of the drivers that matter.

U.S. Bancorp has the “Main Street banking” exposure I still favor, but the bank’s leverage to corporate payments and merchant processing could be a near-term weakness if the economy slows more than expected, and I’m likewise still concerned about the bank’s deposit leverage through this next phase of the cycle. On the other hand, closing the Union Bank deal should relieve at least one sentiment overhang, and I think the shares are priced for a sub-2% core earnings growth rate that I believe the bank should be able to beat by a decent margin in the years to come.

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U.S. Bancorp: Valuation And A Vanishing Deal Overhang Should Help Address Underperformance