We are reiterating our Neutral recommendation on U.S. Bancorp (USB) stock.
U.S. Bancorp’s third-quarter 2011 earnings of 64 cents were slightly ahead of the Zacks Consensus Estimate of 61 cents, reflecting an improvement in credit metrics given a decline in provision for credit losses coupled with modest revenue growth. However, these positives were partially offset by an increase in non-interest expenses and taxes.
U.S. Bancorp remains one of the most profitable large-cap banks in the industry. The company has weathered the economic downturn relatively well. Its core franchisee is attractive and the diverse revenue stream is encouraging. Going forward, we expect strategic acquisitions to help its top-line growth.
In recent years, U.S. Bancorp has been an active acquirer on the processing side of the business. The payment business is expected to continue to help maintain growth in an otherwise unfavorable operating environment.
Recently, U.S. Bancorp’s unit, Elan Financial Services, acquired $700 million in Financial Institution credit card portfolios from FIA Card Services, N.A., Bank of America Corp.‘s (BAC) credit-card unit. The portfolio acquired by the U.S. Bancorp unit comprises credit card assets of 28 financial institutions and includes small business and consumer cards. Terms of the deal were not disclosed.
Improving credit quality, solid capital levels and a focus on capital redeployment also bode well. Yet, a sluggish economic recovery and low interest rate environment, as well as regulatory issues, will continue to restrict any robust development at the company. Hence, our Neutral recommendation on the stock remains in place.
U.S. Bancorp currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Considering the fundamentals we have a Neutral recommendation on the stock.
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