U.S. Bancorp is a Long-Term Portfolio Booster
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As the parent company to U.S. Bank, U.S. Bancorp (NYSE: USB) continues to remain one of the nation's most profitable banks, despite the effects of the Recession. As of March 31, the company has $341 billion in assets. However, given lackluster performances all around during this global economic time of hardship, U.S. Bancorp was recently downgraded from "Outperform" to "Neutral" by Zacks Analysts. This comes in the wake of a sluggish economy, continuing low interest rates, and stricter capital restrictions.
Analysts do not appear to be particularly worried about this downgraded rating, however. U.S. Bancorp has historically been very strong. In April, the company reported first quarter earnings of $0.67 per share. Also, after receiving approval from the Federal Reserve, U.S. Bancorp increased its dividend by 56% and announced a 100 million share repurchase authorization. The company has also seen improvements in its credit quality this year. The company declared its dividends for this quarter, with the number coming in at $0.195; this equals an annual dividend of $0.78 per common share.
As a positive and optimistic indication that the economy might be turning around, the U.S. Treasury announced last month that there would be secondary public offerings on banks that the treasury had previously bailed out with taxpayer funds. These companies are Taylor Capital Group (TAYC), Ameris Bancorp (ABCB), First Defiance Financial Group (FDEF), LNB Bancorp (LNBB), First Capital Bancorp (FCVA), and United Bancorp (UBCP), and they are all competitors to U.S. Bancorp.
While financial stocks do hold a higher amount of risk than most other stocks, U.S. Bancorp has still been one to hang on to in these uncertain economic times. U.S. Bancorp, as well as competitors JPMorgan Chase (NYSE: JPM) and Wells Fargo (NYSE: WFC), all have current price-to-earnings ratios below 12. Recently, U.S. Bancorp was even publicly backed by billionaire Warren Buffett, who has invested $2.2 billion in the company to date. Wells Fargo has not only been called the best financial stock to buy right now, but its return on assets of 1.31% is the second highest of the nation's twenty largest banks, second only to U.S. Bancorp.
Earlier this month, it was announced that several mortgage servicers such as JP Morgan, Wells Fargo, Bank of America (BAC), Citigroup (C), and U.S. Bancorp stand to see $12 billion in revenue this year due to refinancing mortgages under HARP (Home Affordable Refinance Program). Homeowners who refinance through this program only stand to save between $2.5 billion and $5 billion. This discrepancy is due in part to policy makers being forced to grapple with demands coming in the wake of the housing crash, now in its sixth year. This program has been criticized because it means big banks have a major advantage when it comes to refinancing, but for U.S. Bancorp, this means a welcome potential increase in revenue.
In early June, the company lowered its conservative thirty year interest rate to 3.7%. This is the one disheartening issue that U.S. Bancorp has had to deal with. However, they are not alone, as almost all banks have had lower interest rates in these hard economic times. The company is also increasing its overdraft fees later this year. To make it up to customers, however, the bank will no longer charge customers for closing bank accounts "early." Many banks have come under fire for their lackluster support of checking accounts, but U.S. Bancorp has done a good job of avoiding too much backlash for its financial decisions, partially due to its ability to meet most of its customers' needs.
Analysts seem very supportive of U.S. Bancorp and affirm that they would back it, even in these conditions. U.S. Bancorp is doing a great job of keeping its finger on the pulse of what consumers and investors want and need. In order to gain new clients, the company has recently released smartphone banking applications that make banking on the go easier in today's fast-paced society. In addition to making banking more accessible to consumers and keeping up with the technology of its competitors, releasing smartphone applications is a surefire way to increase the amount of revenue that passes through the bank on any given day. This is a fantastic strategy for U.S. Bancorp to increase its revenue in a consumer friendly fashion. And, unlike some of its competitors, the company has not suffered any bad press that would make people wary of doing business with them. According to analysts, expect this to be one of the reasons we see an increase in the price of U.S Bancorp's stock in coming weeks.
U.S. Bancorp is further keeping up with the times by recently declaring $250 million to a solar fund to back solar-powered roof systems to be installed in U.S. homes, businesses, and government buildings. U.S. Bancorp is backing Solar City (NASDAQ: SUNS) with this money in its renewable energy project. Working in the realm of solar energy has many benefits, including financial ones. There are various federal and state subsidies and tax credits. With the price of solar panels having declined over the last few years, U.S. Bancorp has made a very technologically savvy and price conscious decision through its backing of the project. The recent $250 million fund is the sixth that U.S. Bancorp has provided to the Solar City Corporation for building renewable energy sources and projects.
I believe U.S. Bancorp is a solid stock to buy for the long-term. Following last month's successful Greek elections, the world can rest for a little bit knowing that the country won't exit the euro zone for the time being. Hopefully the global economy can head back in the positive direction it was in before all the Greek trouble started. For the time being, despite some sluggish activity, U.S. Bancorp is doing as well as it can given the conditions. If and when things start turning around, it will be a strong and solid company to watch.
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