Yahoo Finance U.S. Bancorp (USB) Rides on Revenue Growth Amid High Costs
U.S. Bancorp USB is likely to benefit from its diverse revenue sources and solid loan and deposit balance. Also, its inorganic growth moves support expansion into new geographic footprints. However, a persistent rise in costs is expected to weigh on its bottom line. Further, lack of diversification in the loan portfolio and legal hassles are major near-term headwinds.
U.S. Bancorp’s revenues witnessed a compound annual growth rate (CAGR) of 1.3% over the last three years (2019-2022). The rising trend continued in the first half of 2023. USB’s net interest income and its efforts to enhance its range of products, services and capabilities will continue to support its revenues. Management expects adjusted total revenues to reach $28-$29 billion in 2023.
Apart from rising revenues, the bank’s average deposits and loans witnessed a three-year CAGR of 10.5% and 14.6%, respectively, in 2022. The rising trend for average loans and average deposits continued in the first half of 2023 compared with the previous year.
U.S. Bancorp has forayed into new markets and fortified existing markets through a number of strategic acquisitions in the past years. Last year, it completed the acquisition of MUFG Union Bank’s core regional banking franchise from Mitsubishi UFJ Financial Group. It completed the conversion of Union Bank during second-quarter 2023. In 2021, it completed the buyout of PFM Asset Management, TravelBank and Bento Technologies. These past acquisitions have strengthened USB’s balance sheet and fee-based businesses.
USB has maintained a strong balance sheet. As of Jun 30, the company’s cash and due from banks of $70.64 billion exceeded its long-term debt of $45.28 billion, reflecting manageable debt levels. Given its decent cash levels and impressive earnings strength, its capital distribution activities seem sustainable and are likely to boost investors’ confidence in the stock.
However, USB continues to record a rise in non-interest expenses. The metric has witnessed a CAGR of 5.2% over the last three years (2019-2022). The rise was mainly due to higher merger and integration charges, compensation and employee benefits, net occupancy and equipment expenses, as well as technology and communications expenditures. The rising trend continued in the first half of 2023. Management expects to incur approximately $1.4 billion in total for the Union Bank integration. Hence, USB’s cost base remains relatively high, which is likely to hinder bottom-line growth.
Further, the lack of diversification in loan portfolio amid uncertain economic conditions are likely to act as headwinds. Around 50.4% of USB’s loan portfolio comprises commercial loans (commercial and commercial real estate lending) as of Jun 30.
Analysts seem bearish regarding USB’s earnings growth prospects. The Zacks Consensus Estimate for the company's 2023 earnings has been revised 2% downward over the past 60 days. The company currently carries a Zacks Rank #3 (Hold).
Over the past six months, shares of USB have declined 15.8% compared with the industry's fall of 4.9%.
Image Source: Zacks Investment Research
Bank Stocks Worth a Look
A couple of better-ranked stocks from the banking space are JPMorgan Chase & Co. JPM and Bank7 BSVN.
JPMorgan Chase currently sports a Zacks Rank #1 (Strong Buy). Its earnings estimates for 2023 have been revised marginally upward over the past 30 days. In the past three months, JPM shares have rallied 1.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Bank7’s current-year earnings has been revised 7.4% upward over the past 60 days. Its shares have gained 0.8% over the past year. Currently, BSVN carries a Zacks Rank #2 (Buy).
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