US Bancorp Invests In Future Growth, Analyst Raises Price Target on Strong Profitability
Shares of US Bancorp (NYSE:USB) came under pressure in early trading on Friday after rising following the company’s upbeat second-quarter results.
Despite higher expenses, US Bancorp delivered 400 basis points (bps) of positive operating leverage, "driven by broad based revenue growth," according to DA Davidson.
The US Bancorp Analyst: Analyst Peter Winter reiterated a Buy rating, while raising the price target from $72 to $74.
The US Bancorp Thesis: Expense growth has started to accelerate after remaining flat to down over the past 10 quarters, as the company invests for future growth, Winter said in the note.
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He highlighted the following from US Bancorp’s results:
- Earnings came in at $1.35 per share, significantly higher than $1.18 in the previous quarter and $1.11 per share in the year-ago quarter.
- Despite higher expenses, earnings beat consensus of $1.29 per share, driven by a lower provision and stronger revenue growth.
- Broad-based fee income growth of $328 million year-on-year stood out among the results.
- Fee income grew to $3.325 billion, with BTIG adding $98 million in June.
Outlook: Management’s guidance for the third quarter includes contributions from BTIG and Amazon.com Inc (NASDAQ:AMZN), the analyst stated.
- Net interest income growth of 4%-6%
- Fee income growth of 12%-14%
- Non-interest expense growth of around 8%
The guidance includes around $200 million in capital markets fees from a full quarter from BTIG and a revenue contribution from the transition of Amazon’s small business credit cards to US Bancorp, Winter noted.
"Profitability metrics are at upper-end of peers, capital levels are building and if USB can sustain the strong revenue momentum, USB should regain its premium valuation, in our view," he further wrote.
USB Price Action: Shares of US Bancorp had declined by 0.06% to $63.96 at the time of publication on Friday.