U.S. Bancorp Rises on Growth Initiatives; Should We Hold? - Analyst Blog

On Dec 9, 2014, we issued an updated research report on U.S. Bancorp (USB). Shares of this major regional bank have recorded a year-to-date return of 10.8%. Further, U.S. Bancorp has outpaced the Zacks Consensus Estimate in two of the last four quarters, with an average beat of 0.66%, while it was in line in the remaining two quarters.

We believe this growth story has been aided by the company's continued focus on strategic acquisitions among several other positives including a strong capital position, steady capital deployment activities and improving credit quality.

U.S. Bancorp has made a number of strategic bank acquisitions in the past years, which has opened new markets to it and fortified existing ones. Notably, in Jun 2014, the company acquired the Chicago-area branch banking operations of the Charter One Bank franchise owned by RBS Citizens Financial Group, a subsidiary of The Royal Bank of Scotland Group plc (RBS).

These acquisitions, combined with ongoing investments in innovative product enhancements, services and people has strengthened the company's balance sheet and fee-based businesses besides increasing market share.

U.S. Bancorp experienced strong growth in average loans and deposits during the first nine months of 2014, as it continued to expand and deepen relationships with current customers, as well as acquire new customers and market share.

We view U.S. Bancorp as a sound asset for yield-seeking investors. Following the Federal Reserve's approval in Mar 2014, the company's board of directors approved a share repurchase program up to $2.3 billion through Mar 2015. Further, in Jun 2014, the company hiked its quarterly dividend by 6.5%. Notably, during the first nine months of 2014, reflecting the company's capital strength, U.S. Bancorp paid $1.29 billion as common stock dividends and repurchased common stock worth $1.7 billion.

Despite strong fundamentals, we believe there are certain issues that may create pressure on the company's financials in the near term. These include absence of a credible improvement in the mortgage market, declining net interest margin due to the low interest rate environment, expanding cost base and the prevailing stringent regulatory landscape.

Further, the Zacks Consensus Estimate over the past 30 days decreased by a penny to $3.07 for 2014, while it moved up slightly to $3.30 per share for 2015. Hence, U.S. Bancorp currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked finance stocks worth considering include Enterprise Financial Services Corp. (EFSC) and Baylake Corp. (BYLK), both with a Zacks Rank #1 (Strong Buy).

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