U.S. Bancorp's Ratings Affirmed by Moody's; Outlook Stable
The long and short-term ratings for the U.S. Bancorp USB and its subsidiaries, including its bank subsidiary, U.S. Bank National Association, have been affirmed by Moody's Investors Service, the rating services arm of Moody's Corporation MCO. The rating outlook for the company is stable.
Specifically, U.S. Bancorp’s senior unsecured and subordinated debt rating is A1. Its subsidiary bank’s long-term deposit rating is Aa1. Further, its issuer and senior unsecured debt rating is A1 and short-term deposit and senior debt ratings are Prime-1. The bank’s counterparty risk assessments are Aa2/Prime-1 and Baseline Credit Assessment (BCA) is aa3.
Looking at U.S. Bancorp’s price performance, the stock increased 35.6% over the last one year, underperforming the 43.6% gain for the Zacks categorized Major Regional Banks industry.
The company’s steady capital deployment activities reflect its capital strength. Also, the gradual ease in the margin pressure is encouraging. These should help the price performance continue in the near term as well.
Reasons Behind the Affirmation
U.S. Bancorp’s rating reflects its consistent operating efficiency of around 50%. According to Moody’s, this level of efficiency serves as an advantage as the company’s low cost structure helps it maintain profit margin while competing on price.
Also, the company benefits from low correlation of performance because of its diversified business lines. Further, the company has maintained good asset quality over time, supported by low problem loans and net charge-offs as well as diversity in its loan mix.
In fact, U.S. Bancorp’s position among Moody's highest-rated banks on a standalone basis is sustained by the comparative lack of concentration risk and stability of its business mix.
However, the bank’s capital ratios are on the downside. In its fourth-quarter 2016 results, U.S. Bancorp reported Common Equity Tier 1 ratio of 11.7%. It is seen as a weakness when compared to its competitors.
Factors that Can Trigger the Ratings Change
U.S. Bancorp’s rating can improve if the capital ratios are higher with no addition of incremental risks offset by its very high BCA.
The ratings can move downward if concentration risk increases and capital or profitability metrics decline.
Currently, U.S. Bancorp carries a Zacks Rank #2 (Buy).
A couple of other favorably ranked finance stocks include Lakeland Bancorp, Inc. LBAI and Canadian Imperial Bank of Commerce CM. Both these stocks sport a Zacks Rank #1 (Strong Buy). You can the complete list of today’s Zacks #1 Rank stocks here.
Lakeland has witnessed an upward earnings estimate revision of 6% for the current year in the past 60 days. Also, its share price surged 90.2%, over the past one year.
Canadian Imperial’s earnings estimates have been revised upward by 7.2% for the current year in the past 30 days. Also, its share price is up 28.9%, over the last one year.
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U.S. Bancorp (USB): Free Stock Analysis Report
Moody's Corporation (MCO): Free Stock Analysis Report
Canadian Imperial Bank of Commerce (CM): Free Stock Analysis Report
Lakeland Bancorp, Inc. (LBAI): Free Stock Analysis Report
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