You Should Bank on U.S. Bancorp
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What is U.S. Bancorp?
With $330 billion in assets, U.S. Bancorp (NYSE: USB) is the fifth largest commercial bank in the United States, with over 3,000 bank branches and 5,000 ATMs. It operates in five main business lines: Consumer and Small Business Banking, Payments Services, Wholesale Banking and Commercial Real Estate, Wealth Management and Securities Services and Treasury and Corporate Support.
History of the Bank
According to the company, its roots date back to the opening of the First National Bank of Cincinnati, which was founded in 1863 under the National Charter #24. A number of mergers and acquisitions of regional banks throughout the 20th century resulted in the current U.S. Bancorp.
Since 2009 it has made 16 acquisitions, mainly of troubled banks with the Federal Deposit Insurance Corporation (FDIC) bearing the credit loss risk, including the Nevada banking operations of BB&T Corp. (NYSE: BBT), banking operations of First Community Bank of New Mexico from the FDIC, as well as 38 other FDIC branch locations.
Post-Crisis
Throughout the credit crunch, the bank took Troubled Asset Relief Program (TARP) funds, and saw its share price plummet from the low $40s to $8 and a dividend slash from $0.425 to a nickel.
U.S. Bancorp was one of the first banks to repay TARP funds, it has raised the dividend 150% and the FDIC-assisted acquisitions of failed banks have helped the bank reach its targets and post record net revenue of $5.1 billion.
The shares have steadily recovered to around $28 and have returned 7.5% YTD as of the latest close price, performing better off the start for 2012 than rival PNC Financial Services (NYSE: PNC).
Outlook
Currently, the shares trade for a P/E ratio of 11 with an average 2012 ESP estimate of $2.64. Based on the most recent closing price of $29.08 on Jan. 18, with a $0.125 dividend, it carries a 1.74% yield, which makes the stock historically expensive also.
All five business lines are seeing a growth in Net Interest Income, as compared to 4Q10. Revenue growth and a lower provision for credit losses, which drove the higher EPS for the quarter and year, carry weight in CEO Richard K. Davis' statement that “Raising the dividend remains a top priority for this management team and for our Board of Directors.”
The Numbers
P/E (consensus forecast, 2012): 11
Yield: 1.75%
Total Assets: $340 billion
Tangible Common Equity ratio: 6.6
Tier 1 Capital ratio: 10.8%
Net Interest Margin: 3.60
Leverage ratio: 9.1
Insider Activity
Over the past year, insider dealings were heavily skewed towards selling. The total shares sold were 429,893 for 2011, compared to 5,000 bought by the Vice Chairman. Whilst insider buying can’t be misunderstood and is a strong indicator of insiders belief in a positive future outlook for the company, selling can happen for a number of reasons, so keep an eye but do not let it put you off from making a position.
Most Recent Transactions (excluding options)
Cecere Andrew: Sold 86,462. Collins Arthur D Jr: Sold 20,135. Mitau Lee R: Sold 5,000
My Opinion
If there was more insider buying, coupled with the record earnings, strengthening balance sheet, and positive outlook, the stock would be a screaming buy. The business is; probably the best regional out there, however, at the current yield and hence price level, wait for it to come down. At the current size, the bank can still see growth in EPS from acquisitions, deposit and loan growth. Wait for a pullback to take a position during a more attractive dividend yield, however, keep in mind that as the dividend grows, your Yield On Cost (YOC) would grow giving you income growth as well as capital gains as the bank grows.
The Motley Fool owns shares of PNC Financial Services. FoolishMikee has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
