U.S. Bancorp (USB) Quarterly Valuation


U.S. Bancorp is one of the few banks that survived the financial crisis without suffering a loss.  That may make some investors immediately jump on board for the company, but it is important to keep the analysis based on fundamentals.  By using the ModernGraham analysis that we can determine which of those companies may have the least amount of risk going forward, and then compare the fundamental analysis of U.S. Bancorp to any other potential investment.  What follows is how U.S. Bancorp fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): U.S. Bancorp (U.S. Bancorp) is a multi-state financial services holding company. It provides a range of financial services, including lending and depository services, cash management, foreign exchange and trust and investment management services. It also engages in credit card services, merchant and automated teller machine (ATM) processing, mortgage banking, insurance, brokerage and leasing. The Company operates in five segments: Wholesale Banking and Commercial Real Estate, Consumer and Small Business Banking, Wealth Management and Securities Services, Payment Services and Treasury and Corporate Support.In January 2012, the Company’s bank, U.S. Bank National Association, acquired the banking operations of BankEast. In February 2013, Elavon, global payments provider and wholly owned subsidiary of the Company acquired Collective Point of Sale Solutions Ltd.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass all 6 of the following tests: Score = 5/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  3. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – PASS
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 3/3

  1. Earnings Stability – positive earnings per share for at least 5 years – PASS
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

MG Value $56.64
MG Opinion Undervalued
Value Based on 3% Growth $36.95
Value Based on 0% Growth $21.66
Market Implied Growth Rate 3.63%
PEmg 15.75
PB Ratio 1.83

Balance Sheet – 9/30/2013 

Total Debt $18,750,000,000
Total Assets $360,681,000,000
Intangible Assets $9,173,000,000
Total Liabilities $320,549,000,000
Outstanding Shares 1,831,660,000

Earnings Per Share

2013 $3.01
2012 $2.84
2011 $2.46
2010 $1.73
2009 $0.97
2008 $1.61
2007 $2.43
2006 $2.61
2005 $2.42
2004 $2.18
1999 $1.92

Earnings Per Share – ModernGraham 

2013 $2.55
2012 $2.19
2011 $1.85
2010 $1.66
2009 $1.75
2008 $2.17


U.S. Bancorp is very impressive, and is in fact one of the healthiest banks I have reviewed using the ModernGraham model.  The company nearly qualifies for the Defensive Investor, which is a very difficult task for financial companies in the wake of the financial crisis.  The only problem a Defensive Investor has with the company is the lack of sufficient growth in earnings over the ten year period.  The Enterprising Investor is not swayed away from the company, though, and should feel comfortable proceeding with further research such as a review of ModernGraham’s valuation of JP Morgan (JPM) or ModernGraham’s valuation of Capital One Financial (COF).  From a valuation perspective, the company has grown its EPSmg (normalized earnings) from $1.75 in 2009 to $2.55 for 2013.  While this is not a huge level of growth, the market is only implying a growth estimate of 3.63%, which is more than supported by the growth seen historically.  As a result, the intrinsic value of the company is significantly higher than the market price, and the company appears to be undervalued.

What do you think?  What value do you place on U.S. Bancorp?  Is the company suitable only for Enterprising Investors?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in U.S. Bancorp (USB) or any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill





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