shares ticked higher after the super-regional bank received its second upgrade of the week on Wednesday.
FBR Capital Markets jumped on the U.S. Bancorp bandwagon and raised its rating on the stock to outperform from market perform in an industry note. FBR's boost follows a similar call by UBS analyst Heather Wolf, who lifted her assessment of the company's share to buy from neutral on Tuesday.
"Given the year-to-date underperformance of the largest six banks compared to the regional banks, we favor the big banks into 2Q10 earnings as we expect visibility into the impacts of the financial reform bill will improve, which should relieve some of the uncertainty that has weighed on these stocks," FBR analysts wrote in an industry note.
U.S. Bancorp has "one of the most diversified revenue streams" and "one of the highest returns on equity in the industry," the note says. Therefore investors should "look to take advantage of recent weakness in U.S. Bancorp valuation, especially to the extent that weakness has been driven by financial reform given its limited exposure to capital markets businesses and our estimate that debit card fees only account for about 3%" of total company revenue, the note says.
Including this upgrade, 20 of the 33 analysts who cover U.S. Bancorp now rate the stock at the equivalent of a buy rating, according to
. Just two analysts have sell ratings on the bank stock.
In a note previewing second-quarter results for the banks, the FBR analysts also said they favor
, U.S. Bancorp, and
Bank of America
in that order. Select regional bank stocks were also tabbed as having room for upside such as
With the quarter drawing to a close on Wednesday, FBR analysts said they expect earnings for the group to be "modestly in line" with the current consensus estimates. The firm believes that mortgage servicing rights and weaker fixed-income trading results "could serve as a drag" for the larger banks, but are likely priced into share prices already.
FBR expects the biggest driver for the bank stocks during earnings season will be management commentary about the estimated effects of financial reform and residential mortgage lending trends (particularly credit costs and the potential for loan growth in the second half of the year). JPMorgan will be the first of the big banks to report its results on July 15.
In the same note, FBR analysts downgraded
Hudson City Bancorp
to market perform from outperform. FBR is concerned about pressures to Hudson City's loan growth in the second half of the year resulting from agency participation in residential lending.
Other stocks the FBR analysts remain cautious about include
Shares of U.S. Bancorp have fallen 14% since March 31 vs. the KBW Bank Index, which is down 11% for the quarter. U.S. Bancorp shares trading marginally higher in early afternoon action at $22.65, while Hudson City's stock fell 1.5% to $12.40.
--Written by Laurie Kulikowski in New York.