U.S. Bancorp Upgraded to Buy

U.S. Bancorp got a vote of confidences from Oppenheimer on Friday.
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) --

U.S. Bancorp

(USB) - Get Report

got a vote of confidences from Oppenheimer on Friday when analyst Chris Kotowski upgraded the big regional bank to a buy rating.

"The word 'growth' appears eight times on the front page" of U.S. Bank's third-quarter earnings release. The word 'record' appears twice, and it relates to revenues," Kotowski writes in a note to clients Friday.

"We have been saying since ... March 2009 that loan growth would be the last step of the recovery that would occur only after the credit recovery had run its course for a while," Kotowski writes. "Thus, it is fitting that

U.S. Bank, which had among the best credit quality in the group, should be the first to return to growth mode."

U.S. Bank

reported on Wednesday net income of $908 million, or 45 cents a share, up a whopping 50% from the year-earlier quarter. However, shares were trading down on the report date. U.S. Bank shares also lag the

Keefe, Bruyette & Woods (I:BKX)

, which tracks the 25 largest institutions, the analyst notes. Kotowski raised his 12-18 month target price on the stock to $29.

Shares were falling modestly as the market opened.

"All the key line items of the report were at or above expectations," Kotowski says in the note. "Indeed, the biggest difference was that there was loan growth. Although we assumed that USB would gain share, in light of the Fed loan numbers shrinking roughly 1% in the quarter we still expected loans to decline."

U.S. Bank has been a solid performer throughout the financial crisis, albeit at times the steady-as-she-goes bank was overshadowed by its large bank competitors. The bank was able to take market share by seizing on several

bank acquisitions


Additionally, it is one of the few banks that is already showing profitable loan growth as banks struggle to boost revenue in a still sluggish economy. The ability to make

profitable loans will be the key indicator for regional banks

in the near term.

U.S. Bank's solid payments business "was right on target and should continue to grow as consumer and corporate spending recover," Kotowski adds.

Still the regional bank did experience more pressure on deposit service charges related to regulatory changes to overdraft fees.

"There is no question that the cost of branches, check processing, etc. must be covered with a reasonable profit margin, and there is no question that this must be done by moving more from penalty fees on a few to broader based fees (or balances) for all using the services, but clearly fiddling with pricing models always creates a risk of some customer unhappiness," the note says.

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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