Rising Loans Aid U.S. Bancorp (USB), Legal Issues Prevail
On Mar 5, we issued an updated research report on U.S. Bancorp USB. The company continues to gain from organic and inorganic growth strategies, rising loan and deposit balances, while escalating expenses on investments in technology, lack of diversification of loan portfolio as well as pending legal matters remain near-term headwinds.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 11.1% upward, over the past 30 days. The stock currently carries a Zacks Rank #3 (Hold).
Shares of U.S. Bancorp have appreciated 43.6% in the past six months compared with the industry’s growth of 47.3%.
The company has recorded continued organic growth in the last few years, backed by its constant efforts to strengthen existing relationships and improving customers’ experience through the introduction of new products. Its revenues witnessed a CAGR of 2.5% over the last five years, ended 2020. This rise primarily resulted from higher net interest as well as non-interest income, with some annual fluctuations.
Notably, the company’s average deposits and loans also reflected a five-year CAGR of 3.5% and 6.2%, respectively, in 2020. We believe both loan and deposit balances are poised to improve in a developed economy.
Supported by a strong liquidity position.
U.S. Bancorp has been able to expand via a couple of mergers and acquisitions in the past few years, which have opened up new markets for the bank and fortified its presence in the existing markets. These acquisitions, combined with the ongoing investments in innovative product improvements and services, have bolstered the company’s balance sheet and fee-based businesses besides boosting the market share.
However, rising costs continue to dampen the company’s bottom-line growth. As the bank intends to make investments in digital, data and technology refinements, product differentiation and other initiatives, we believe, such costs might weigh on its expense base to some extent in the upcoming quarters. The company’s non-interest expenses saw a CAGR of 3.8% over the last five years (2016-2020).
Further, a bulk of U.S. Bancorp’s loan portfolio — nearly 50% as of Dec 31, 2020 — comprises total commercial loans. Such a lack of diversification can be precarious for the company amid a challenging economy.
U.S. Bancorp continues to battle investigations and lawsuits from investors and regulators. Though management resolved certain litigations related to the sale of risky mortgage-backed securities, many of these cases are yet to be settled. All these might lead to heightened legal expenses and provisions in the near term.
Stocks to Consider
Better-ranked stocks in the financial space include KeyCorp KEY, flaunting a Zacks Rank of 1 (Strong Buy), and Fifth Third Bancorp FITB and Bank Of America Corporation BAC, carrying a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
KeyCorp witnessed a 25.2% upward earnings estimates revision for the current year, in the past 30 days. Moreover, its shares have gained 65% in the past six months.
Fifth Third Bancorp’s current-year earnings estimate have been were revised 17.3% upward, over the past 30 days. Further, its shares have surged 75.1%, in six months’ time.
Bank Of America’s earnings estimate for the ongoing year moved 12.1% north in the past month. Also, its share price has appreciated 44.9% over the past six months.
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