Risk Reward Balance U.S. Bancorp - Analyst Blog
June 02 2011 - 10:00AM
Zacks
We have reiterated our Neutral recommendation on U.S.
Bancorp (USB). The reaffirmation follows a detailed
analysis of the company fundamentals following first quarter 2011
earnings, along with an analysis of the current economic
environment, its strengths, opportunities and weaknesses.
U.S. Bancorp’s first quarter 2011 earnings of 52 cents per share
outpaced the Zacks Consensus Estimate of 49 cents. The quarter’s
earnings included a $46 million (2 cents per share impact) gain
related to the acquisition of First Community Bank of New Mexico in
a transaction with the Federal Deposit Insurance Corporation.
U.S. Bancorp continued to post an improvement in credit.
Provision for credit losses decreased both sequentially and year
over year, with net charge-offs revealing a declining trend. With
the recovery in economy, we expect this trend to continue in the
upcoming quarters.
The company also posted a growth in revenue, which, however,
narrowly missed the Zacks Consensus Estimate. The positives were
partially offset by an increase in expenses.
U.S. Bancorp has weathered the financial crisis well and remains
well positioned to benefit from its diverse business model. The
company stands to benefit from a gain in market share through both
organic growth and strategic acquisitions.
Going forward, we expect the purchase of First Community Bank
and Bank of America’s U.S. and European-based securitization trust
administration businesses to be accretive to the company’s
earnings.
U.S. Bancorp has a disciplined approach to capital management.
The dividend increase and stock buyback following Fed’s approval
after the completion of stress tests to assess the bank’s financial
position will boost investors’ confidence. Other Wall Street banks
that have similarly received approval from the Fed for dividend
increase and share buyback in March include JPMorgan Chase
& Co. (JPM) and PNC Financial Services Group
Inc. (PNC).
Yet, regulatory issues and top-line headwinds continue to
restrict robust development at U.S. Bancorp. Given the current
interest rate environment, the tepid economic recovery and security
purchases, net interest margin is expected to remain tempered.
Mortgage repurchase activity is also likely to remain slightly
elevated over the next few quarters.
Hence, the positive and negative seem balanced for the stock and
the Neutral recommendation is retained. Additionally, shares of
U.S. Bancorp currently retain the Zacks #3 Rank, which translates
into a short-term ‘Hold’ rating.
JPMORGAN CHASE (JPM): Free Stock Analysis Report
PNC FINL SVC CP (PNC): Free Stock Analysis Report
US BANCORP (USB): Free Stock Analysis Report
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