A No-Drama Quarter From U.S. Bancorp With Increased Capital Returns On The Horizon

If you want an exciting, dynamic bank, you don’t really look at U.S. Bancorp (USB), but if you want a steady, high-margin performer, particularly during tougher times in the banking cycle, this is a name you consider. To that end, U.S. Bancorp’s third quarter results didn’t have a lot of surprises, though the company’s decision to accelerate capital returns to shareholders was a welcome update.

Management’s recent investor day highlighted some meaningful growth opportunities for U.S. Bancorp, including ongoing investment in payment technologies, branch-lite digital-driven organic consumer banking growth, and maybe even some M&A. Pre-provision growth will probably drop to the low-single digits next year, and I’m only looking for around 3% long-term core earnings growth, but this is a very profitable, well-run bank that is trading at a reasonable valuation today.

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A No-Drama Quarter From U.S. Bancorp With Increased Capital Returns On The Horizon

U.S. Bancorp Shares Still Stuck

Banks have rebounded off of their December lows, but large banks have generally rebounded less strongly, and U.S. Bancorp (USB) less so than many of its peers. Although U.S. Bancorp doesn’t have the risk of a company like Bank of America (BAC) or Comerica (CMA) where a fading rate cycle takes away a major growth lever, and it does still have a high-quality set of fee-generating businesses, the company’s core operating footprint (excluding California) isn’t well-loved, operating profit growth is likely to meander in the mid-single-digits and the cycle as a whole is not favorable to banks with growing concerns about yield inversion and recession.

If you’re patient and don’t really care about how the shares perform over the next six to 12 months, U.S. Bancorp remains one of the best-run banks in the country and the shares are undervalued enough that they should generate an attractive double-digit long-term annualized return from here. PNC (PNC), Comerica, and JPMorgan (JPM) are just as cheap, or cheaper, though, and so I’d at least advise some “comparison shopping”.

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U.S. Bancorp Shares Still Stuck

PNC Financial Still On Hold

There's only so many ways to say that a company is largely sitting on the sidelines, but that remains the case for PNC Financial (NYSE:PNC). This low-rate muddle-through market, with some emerging concerns about credit, really just isn't the market in which conservatively-run PNC can truly thrive. Management remains conservative; focusing on quality underwriting and keeping plenty of dry powder for the point where rates start to make lending growth look more attractive.

As one of the bigger year-to-date underperformers within its peer group, PNC does look a little more interesting on a relative value basis. The shares don't look dramatically cheaper than those of JPMorgan (NYSE:JPM), BB&T (NYSE:BBT), or the riskier Wells Fargo (NYSE:WFC), but I can see a scenario where worsening credit trends take a bigger bite out of some of these rivals and leave PNC not exactly "the last man standing" but in a stronger relative position. With that, I think PNC is at least a good hold and maybe a name to think about for more conservative investors who want bank exposure and can tolerate a conservative model that will require time to show its value.

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PNC Financial Still On Hold

Wells Fargo Slowed, But Not Broken

Reading some of the more bearish reports on Wells Fargo (NYSE:WFC), you'd almost have to wonder when the plague of locusts is due to arrive. Yes, the company's loan portfolio looks riskier to me than that of many of its peers, and yes, it is going to have a harder time growing interest income and improving its efficiency ratio in a lower-for-longer rate environment. But the company does seem to be handling its energy loans a little more aggressively than most, and Wells Fargo remains a growth-oriented bank with a very appealing deposit franchise.

My fair value estimates are lower, and I do think 2016 is going to be a pretty uninspiring year. Still, the shares look undervalued provided that you believe ROEs can approach the mid-teens again over the next decade and with underlying long-term earnings growth of around 5%. While I do have some credit/balance sheet concerns, the relative valuation may make Wells Fargo worth considering today.

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Wells Fargo Slowed, But Not Broken

Seeking Alpha: Commerce Bancshares Has A Strong Core, But Needs More Cardio

Analyzing and writing about a bank like Commerce Bancshares (NASDAQ:CBSH) can be a frustrating exercise, because there's nothing really wrong with this conservatively-run Midwestern institution, but the upside in the shares, absent a new growth driver, just isn't impressive. Like U.S. Bancorp (NYSE:USB), though, Commerce Bancshares knows what it is, and the management is not going to change course just to make the shares a little more exciting for short-term speculators.

I continue to believe that CBSH can leverage its low-cost deposit base in Kansas and Missouri, along with rising rates and good fee income growth, to generate mid-teens ROE down the road, supporting cash earnings growth of around 7% for the next five years. That's not enough to drive a compelling fair value today, but Commerce looks like a safer bet for investors who believe interest rate hikes will be slow to arrive and that credit conditions could get a little hairy in the short term.

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Commerce Bancshares Has A Strong Core, But Needs More Cardio

Seeking Alpha: BB&T Looking To Leverage Its Strengths In The Quarters Ahead

Whether you like BB&T (NYSE:BBT) as an investment or not, I think even the bears (the rational ones, at least) will acknowledge that BB&T has a well-deserved reputation for excellent cost management, a diversified revenue and fee mix, solid growth-through-acquisition, and an ability to reposition itself as the market demands. Those are all traits that are going to be critically important to the company in the coming quarters, as the bank will be integrating two large acquisitions (and a third deal that's not exactly trivial), repositioning its lending portfolio, and leveraging additional cross-selling opportunties.

How cheap (or not) BB&T is depends on your horizon. In terms of near-term performance (estimated 2015 returns on tangible common equity), BB&T does indeed look expensive relative to some of its peers. Look a few years out, though, and factor in the synergies of acquisitions, higher rates, and a different loan book and I believe that a low-double digit ROE supports a fair value in the low $40's.

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BB&T Looking To Leverage Its Strengths In The Quarters Ahead

Seeking Alpha: Fifth Third Looks Undervalued, But Not Without Some Reasons

I've seen a quote attributed to Warren Buffett that goes "price is what you pay and value is what you get". With that in mind, Fifth Third (NASDAQ:FITB) does indeed look undervalued today but there are reasons why the stock has been weak over the last year (down almost 18%) and a real laggard next to peers like U.S. Bancorp (NYSE:USB), Wells Fargo (NYSE:WFC), and Huntington Bancshares (NASDAQ:HBAN).

From the sounds of it, 2015 is going to be a challenging year for Fifth Third. Management's loan growth guidance doesn't compare well to what other banks in overlapping regions are seeing and the wind down of a consumer advance product is going to create a significant headwind. Amidst all that, management is not looking for any positive operating leverage.

Why be positive? A bad year (or two) doesn't make a bad bank and Fifth Third shares are priced for virtually no improvement in ROE over the coming years. Fifth Third has a good collection of fee-generating operations and relatively good exposure to growing banking markets. Fifth Third isn't going to appeal to investors that prize quality in banking stocks, but there is enough upside here to make a closer look worth the effort.

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Fifth Third Looks Undervalued, But Not Without Some Reasons

Seeking Alpha: U.S. Bancorp's Steady Excellence Worth A Premium

Exciting is usually a bad thing in banking, and U.S. Bancorp (NYSE:USB) makes steady high-quality execution look pretty good. Not surprisingly, U.S. Bancorp isn't particularly levered to a quick turnaround in interest rates and management is not going to compromise underwriting discipline just to boost loan growth.

That said, U.S. Bancorp maintains one of the best net interest margins of its peer group, has kept pace with loan growth, is far more efficient with expenses, and has several lucrative fee-generating businesses. U.S. Bancorp looks as though it's priced only a bit below fair value, but that should be enough for long-term investors who want a cornerstone holding in financial services.

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U.S. Bancorp's Steady Excellence Worth A Premium

Investopedia: Investors Seem To Be Overrating Bank Of America

Few large bank stocks have come close to the market performance of Bank of America (NYSE:BAC) over the past year. While some of that appreciation may have been due to investors accepting that BoA is still a going concern in banking, the reality is that the bank still has a lot of work left to do, and the current banking environment is not exactly hospitable. With legal risks still pretty high and near-term growth opportunities looking more modest, Bank of America seems pretty fairly valued today.

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Investopedia: Fifth Third Seems A Little Underappreciated

Perhaps Fifth Third Bancorp (Nasdaq:FITB) is a little too solid for its own good right now. With investors worried about narrowing spreads and limited loan growth potential, much interest in the sector seems to be turning toward companies with major expense-cutting and credit improvement stories to tell. While Fifth Third is already in pretty good shape, I think investors may yet be underestimating the core growth potential in this bank.

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Seeking Alpha: M&T Bank Is Plenty Bold, And The Street Already Likes It

With a 25-year record of doing an acquisition nearly every year, it was probably no surprise that M&T Bank (MTB) launched another deal in 2012, though the proposed acquisition of Hudson City (HCBK) is the biggest yet. This deal looks to be strongly accretive for M&T Bank over the long term, just as so many of its past deals have been. Given the bank's solid loan growth, good spread, strong expense control, and well-earned reputation for strong returns on capital, this is a top-notch bank. Sadly, it's also priced like one.

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M&T Bank Is Plenty Bold, And The Street Already Likes It