U.S. Bancorp Stock Is Undervalued

U.S. Bancorp’s stock (NYSE: USB) has lost approximately 14% YTD as compared to the 4% rise in the S&P500 index over the same period. Further, the recent volatility in the stock price (down 20% over the last ten days) was due to the turmoil in the banking sector. Notably, the collapse of the Silicon Valley Bank, Signature Bank, and the Credit Suisse crisis has made investors cautious about banking stocks. Overall, USB is trading at the current price of $38 per share, which is 32% below its fair value of $55 – Trefis’ estimate for U.S. Bancorp’s valuation.

The bank posted mixed results in the fourth quarter of 2022, with earnings beating the estimates but revenues missing the mark. It reported total revenues of $6.4 billion – up 12% y-o-y, primarily driven by a 37% jump in the net interest income, partially offset by a 19% decline in the non-interest revenues. While the NII benefited from the improvement in interest rates and higher outstanding loan balances, the non-interest income suffered due to a 65% decrease in mortgage banking revenues. On the cost front, the provisions for credit losses witnessed an unfavorable build-up in the quarter from -$13 million to $1.19 billion. It led to a 45% drop in the adjusted net income to $925 million, despite positive growth in revenues.