U.S. Bancorp (USB) delivered its 6th consecutive positive earnings surprise in the third quarter of 2011, as EPS jumped 42% year-over-year.
Analysts revised their estimates higher off the strong quarter, sending the stock to a Zacks #2 Rank (Buy). Based on consensus estimates, analysts expect 40% EPS growth in 2011 and 10% growth in 2012.
On top of this, the company pays a dividend that yields 1.8%.
Not Your Typical Big Bank
U.S. Bancorp is the 5th largest commercial bank in the United States in terms of total assets. It operates over 3,000 branches and 5,000 ATMs in 25 states. But it isn’t your typical megacap bank – it was one of the few to remain profitable throughout the financial crisis.
U.S. Bancorp was founded in 1863 and is headquartered in Minneapolis, Minnesota.
Third Quarter Results
The company delivered better than expected results for the third quarter of 2011. Earnings per share came in at 64 cents, beating the Zacks Consensus Estimate of 61 cents. It was a whopping 42% increase over the same quarter in 2010.
Total revenue rose 5% to $4.795 billion, ahead of the Zacks Consensus Estimate of $4.745 billion. This was driven by a 6% increase in net interest income and a 3% increase in non-interest income.
The company continued to grow its loan portfolio, particularly in the ‘Commercial’ and ‘Residential Mortgages’ categories. Overall, total loans were up 5%.
Meanwhile, the provision for credit losses declined 48% year-over-year as the company expects the level of net charge-offs to continue to trend lower in the fourth quarter.
Outlook
Analysts revised their estimates higher for both 2011 and 2012 following the strong third quarter. This sent the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2011 is $2.39, representing 40% growth over 2010 EPS. The 2012 consensus estimate is currently $2.62, corresponding with 10% EPS growth.
The company reports its 4th quarter results on January 18.
Dividend
U.S. Bancorp also pays a dividend that yields 1.8%.
The company slashed its quarterly dividend from 42.5 cents per share to 5 cents early in 2009. But it raised it to 12.5 cents in early 2011. I’d except another dividend hike in the first quarter of 2012.
The valuation picture looks very reasonable for USB, with shares trading at just 11.7x 12-month forward earnings. This is a premium to the industry median of 8.2x, but this makes sense given USB’s above-average growth profile.
Its price to book ratio is 1.7, also above its peers, but a discount to its 10-year median of 2.2.
The Bottom Line
With strong earnings momentum, solid growth projections, a 1.8% dividend yield and reasonable valuation, this big bank actually looks attractive.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.
To read this article on Zacks.com click here.
Zacks Investment Research
