USB Is a Bank Stock Bargain

NEW YORK ( TheStreet) -- With its stock clearly lagging the market, U.S. Bancorp ( USB) looks like more of a bargain for long-term investors every day.

USB's shares closed at $33.49 Friday, returning just 5% this year, compared to a return of 14% for the KBW Bank Index ( I:BKX). That's the second-worst year-to-date total return (including reinvested dividends) among the 24 index components. Only Capital One Financial ( COF) has seen a smaller return of 3%.

U.S. Bancorp's shares trade for 10.3 times the consensus 2014 earnings estimate of $3.24 a share, among analysts polled by Thomson Reuters. That valuation is lower than the forward price-to-earnings ratios of 14 other components of the KBW Bank Index.

Strong Earnings Through Thick and Thin

Over the past three full calendar years, in the aftermath of the credit crisis, U.S. Bancorp of Minneapolis has had the strongest earnings performance among large banks in the United States, with returns on average assets (ROA) improving from 1.15% in 2010 to 1.62% in 2012, according to Thomson Reuters Bank Insight. Over the same period, U.S. Bancorp's return on average common equity (ROCE) improved from 12.67% in 2010 to 17.12% in 2012.

Among the nation's largest banks, only Wells Fargo has seen anything close to comparable performance over the same period, with ROA improving from 1.00% in 2010 to 1.40% in 2012, and ROCE improving from 11.17% in 2010 to 13.78% in 2012.

When looking over a much longer period of 10 years through 2012, the numbers are even more striking. USB's mean ROA for the past 10 full calendar years was 1.68%, with a mean ROCE of 18.13%. Among the largest U.S. bank holding companies, Capital One had similar mean ROA of 1.64% during that 10-year period, although the company's mean ROCE was lower, at 12.45%, reflecting higher capital levels during several of those years. Wells Fargo's mean ROA was 1.34% over the 10-year period, while its mean ROCE was 15.45%.

Among the components of the KBW Bank Index, the only other names with similar strong long-term earnings performance have been smaller regional players. Cullen/Frost Banks ( CFR) of San Antonio had a mean ROA of 1.37% and a mean ROCE of 14.08% over the 10-year period, while Commerce Bancshares ( CBSH) of Kansas City, Mo., had a mean ROA of 1.33% and a mean ROCE of 13.31%.

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