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U.S. Bancorp Is Still Underappreciated

Granted, the first-quarter report wasn't USB's best performance. However, it's hard to get too discouraged given the subpar performance within the sector. Plus, it was also encouraging USB's management figured out ways to lower expenses, which helped offset the sub-par showing in fees. This is while at the same time negating the double-digit declines in mortgage banking.

Management's ability to lower expenses and in particular, establishing a fiscal focus, is important to note here. Given how heavily scrutinized banks have been by the Fed in terms of regulations to prevent "too big to fail" scenarios, USB's efficiency ratio actually shrunk below 51%.

By contrast, Wells Fargo's efficiency ratio is slightly above 57%, while JPMorgan's is just below 60. The lower the number, the stronger the bank is perceived to be. So, here, too, U.S. Bancorp is demonstrating that it just might be safer than two of the better names in the sector.

What's more, USB's impressive expense control, which contributed to a lower-than-expected loan loss provision, resulted in a 1% increase in pre-provision net revenue (PPNR). Even though PPNR arrived down 4% sequentially, it matched Wells Fargo's performance on the upside, while also outperforming on the downside -- losing 4% sequentially versus Wells Fargo's 7%.

With all of these factors at place, U.S. Bancorp seems underappreciated. The question, though, is to what extent management can invigorate growth to get investors excited about these shares. With the stock trading at $32 per share, this bank is certainly one of the best value plays in the financial sector, if not in the entire market.

While USB is not as large as some of the bigger banks on the market, investors should realize that it is second to none in terms of return on equity. With improved operating revenue and profit growth, these shares can reach $40 in the next six to 12 months.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.
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