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USB Is a Bank Stock Bargain

Stocks in this article: BAC USB COF ZIOIN CMA KEY HBAN MTB

For U.S. Bancorp, the 2014 EPS estimate of $3.24 is only 7% higher than the 2013 estimate of $3.04. The consensus 2015 EPS estimate is $3.54.

It would appear that Bank of America's stock may be a bit overheated at the moment. Then again, investors also place a high value on the nation's largest retail branch network.

Valuation and Stock Performance Comparisons -- Regional Banks

Bank of America is also not a very fair comparison for U.S. Bancorp because of BAC's much greater regulatory burden and its legacy mortgage headaches.

Here are some large regional banks trading for higher forward P/E ratios than U.S. Bancorp:

  • Zions Bancorporation (symbol) of Salt Lake City. The shares trade for 13.6 times the consensus 2014 EPS estimate of $1.92. The bank's ROA has improved from a negative 0.57% to a positive 0.65% over the past three full years, while its ROCE has improved from a negative 6.53% to a positive 7.39%. Through Friday's close at $26.15, the shares had a 10-year total return of negative 38%.
  • Comerica (CMA) of Dallas. The shares trade for 13.3 times the consensus 2014 EPS estimate of $2.85. The bank's ROA has improved from 0.49% to 0.83% over the past three full years, while its ROCE has improved from 4.89% to 7.45%. Through Friday's close at $37.95, the shares had a 10-year total return of 19%.


  • M&T Bank (symbol) of Buffalo, N.Y. The shares trade for 11.7 times the consensus 2014 EPS estimate of $8.82. The bank's ROA has improved from 1.08% to 1.28% over the past three full years, while its ROCE has improved from 10.03% to 11.68%. Through Friday's close at $103.52, the shares had a 10-year total return of 62%.
  • KeyCorp (KEY) of Cleveland. The shares trade for 10.7 times the consensus 2014 EPS estimate of 96 cents. The bank's ROA has ranged from 0.59% to 0.98% over the past three full years, while its ROCE has ranged between 6.80% and 9.90%. Through Friday's close at $10.30, the shares had a 10-year total return of negative 44%.
  • Huntington Bancshares (symbol) of Columbus, Ohio. The shares trade for 10.7 times the consensus 2014 EPS estimate of 70 cents. The bank's ROA has improved from 0.60% to 1.14% over the past three full years, while its ROCE has improved from 8.10% to 12.17%. Through Friday's close at $7.49, the shares had a 10-year total return of negative 47%.
  • SunTrust (STI) of Atlanta. The shares trade for 10.5 times the consensus 2014 EPS estimate of $2.90. The bank's ROA has improved from 0.11% to 1.11% over the past three full years, while its ROCE has improved from 1.05% to 9.79%. Through Friday's close at $30.46, the shares had a 10-year total return of negative 33%.

U.S. Bancorp's leading long-term stock performance underlines its excellent and consistent earnings performance and its lower risk. But over the short term, investors are not thrilled about the company's revenue prospects, with industry expectations for lower mortgage lending volume this year, and continued pressure on interest margins in the prolonged low-rate environment.

Revenue Concerns

U.S. Bancorp reported first-quarter net income of $1.43 billion, or 73 cents a share, increasing from $1.42 billion, or 72 cents a share, in the fourth quarter, and $1.34 billion, or 67 cents a share, in the first quarter of 2012. The company reported first-quarter mortgage banking revenue of $401 million, declining from $476 million the previous quarter, and $452 million a year earlier.

Please see TheStreet's earnings coverage for full details on USB's results, including its lower expenses that offset the mortgage revenue decline.

After visiting with U.S. Bancorp's management, Deutsche Bank analyst Matt O'Connor in a note to clients on Saturday wrote that the underperformance of the shares "reflects concern that revenue and EPS growth are stalling."

But O'Connor expects the company's second-quarter mortgage revenue to rebound 15% from the first quarter, which "will be better than expected given industry wide apps are up 10%-plus and gain on sale seems higher."

"Loan growth seems to be on track (i.e. 4-6% annualized, q/q), with some positive momentum in corporate banking," O'Connor wrote.

The analyst rates U.S. Bancorp a "buy," with a price target of $38.00, estimating the company will earn $3.07 a share this year, with EPS increasing to $3.30 in 2014 and $3.71 in 2015.

USB Chart USB data by YCharts

Interested in more on U.S. Bancorp? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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