It’s not a high-flying tech stock, but shares of US Bancorp (USB) have surged 13.6% over the past month. While the stock is gaining significant momentum, it’s not too late to consider getting on board, as it still trades at a very modest valuation and offers an attractive dividend yield.
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I’m bullish on shares of the Minneapolis-based bank based on its undemanding valuation, 4.6% dividend yield, and strong recent results.
Taking Stock of US Bancorp
US Bancorp was founded 95 years ago and has a market cap of $70 billion. It offers consumer banking, commercial banking, trust and wealth management services, credit and debit cards, mortgages, and more.
US Bancorp is the largest non-GSIB (global systematically important bank) in the United States and the fifth-largest bank in the country by assets. It has a large footprint with over 2,000 bank branches across 26 states. While it is a large bank, it is still significantly smaller than any of the “big 4” banks in the United States — JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C).
This puts USB in a sweet spot. It enjoys significant size and scale advantages over smaller regional bank competitors, but it is small enough that it avoids some of the more onerous regulations and capital requirements that the aforementioned GSIBs are subject to.
In addition to this advantageous position, another nice thing about investing in US Bancorp is that it is a fairly well-diversified business. About 59% of the bank’s revenue comes from net interest income (more on this below), and the remaining 41% is fee-based. By business segment, 43% of its total net revenue comes from Wealth, Corporate, Commercial, and Institutional Banking (WCIB), 33% comes from Consumer & Business Banking (CBB), and 24% comes from Payment Services.
Humming Along
US Bancorp reported Q2 results last week, and the market liked what it heard. The bank beat consensus estimates on both the top and bottom lines and reported sequentially higher net interest income, along with deposit growth and loan growth.
While net interest income (NII) fell year-over-year, it appears to be stabilizing, as it grew from the prior quarter. The bank expects NII to be flat during the third quarter and to then increase during the fourth quarter, expecting between $16.1 billion and $16.4 billion in NII for the year. This is good news for investors as NII is one of the main ways that banks make money. NII is essentially the spread between what a bank earns from its loans and the money it pays depositors for their savings.
Undemanding Valuation
Despite strong results and the stock’s recent run, USB is still cheap. In fact, with a price-to-earnings multiple of just 11.7 times 2024 consensus earnings estimates, it only enjoys half the valuation of the broader market, as the S&P 500 (SPX) trades at 24.2 times earnings.
This inexpensive valuation should offer investors ample downside protection in the event that the market turns south. It also makes USB an appealing place for investors to park some of their money if they’re looking to rotate out of large-cap tech stocks that have seen their valuations soar since the start of 2023. Based on this cheap valuation, shares of USB have plenty of potential runway ahead.
An Excellent Dividend Stock
Not only is USB stock cheap, but it comes with a great dividend. The stock currently yields an enticing 4.6%. This is more than triple the yield of the S&P 500 (currently yielding just a paltry 1.3%) and also beats out the yield offered by 10-year treasury notes, as these bonds currently yield 4.3%.
In addition to offering a high dividend yield, USB is also a compelling dividend stock based on the consistency and growth of its dividend. With 25 straight years of dividend payments, USB has been paying dividends for a quarter of a century, and it has been growing the size of its dividend payout for 13 consecutive years, making it an attractive dividend growth stock.
Is USB Stock a Buy, According to Analysts?
Turning to Wall Street, USB earns a Moderate Buy consensus rating based on seven Buys, nine Holds, and zero Sell ratings assigned in the past three months. The average USB stock price target of $46.13 implies 1.7% upside potential from current levels.
Perfect Smart Score
US Bancorp earns an enviable “Perfect 10” Smart Score from TipRanks’ Smart Score system. The Smart Score is a proprietary quantitative stock scoring system created by TipRanks that gives stocks a score from one to 10 based on eight market key factors. Stocks with a score of 8, 9, or 10 have “Outperform” ratings.
The score is data-driven and does not involve any human intervention. The market factors that contribute to the Smart Score include Wall Street analyst ratings, corporate insider transactions, financial blogger opinions, individual investor sentiment, hedge fund manager activity, news sentiment, technicals, and fundamentals.
This 10 out of 10 score places US Bancorp in strong company.
The Takeaway
I’m bullish on USB based on its strong recent performance, optimistic forward outlook on NII, undemanding valuation, and attractive 4.6% dividend yield (as well as its strong track record of consistently paying and growing this dividend). These factors make USB an attractive place for investors to rotate profits into as the market continues to rotate out of tech.
