US Bancorp (USB) Quarterly Valuation – April 2014
In the wake of the great financial crisis it can sometimes be difficult for Intelligent Investors to find a solid financial company in which to invest, because they require specific achievements over the historical period.  Many investors may simply decide to throw out the worst years with the rationale that they are outliers that shouldn’t be considered when evaluating the company’s prospects, but doing so would involve speculation.  We don’t know whether the financial crisis will happen again, but we do know that if it does, we can expect to see similar results as we did before.  By continuing to require the same standards for the historical period, Intelligent Investors are able to widdle down banks to only those with the best financial position, and then they are able to determine an intrinsic value to get a sense of whether the company is a good investment.  In addition, a company must have strong financial statements to prove that it is stable enough for Intelligent Investors.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how US 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 Investor – must pass all 6 of the following tests: Score = 5/6
- Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
- Earnings Stability – positive earnings per share for at least 10 straight years – PASS
- Dividend Record – has paid a dividend for at least 10 straight years – PASS
- 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
- Moderate PEmg ratio – PEmg is less than 20 – PASS
- 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
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend – PASS
- Earnings growth – EPSmg greater than 5 years ago – PASS
Valuation Summary
Key Data:
| MG Value | $83.55 |
| MG Opinion | Undervalued |
| Value Based on 3% Growth | $40.90 |
| Value Based on 0% Growth | $23.98 |
| Market Implied Growth Rate | 2.88% |
| PEmg | 14.26 |
| PB Ratio | 1.79 |
Balance Sheet – 12/31/2013
| Total Debt | $20,049,000,000 |
| Total Assets | $364,021,000,000 |
| Intangible Assets | $12,734,000,000 |
| Total Liabilities | $322,908,000,000 |
| Outstanding Shares | 1,824,750,000 |
Earnings Per Share
| 2014 (estimate) | $3.02 |
| 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 |
Earnings Per Share – ModernGrahamÂ
| 2014 (estimate) | $2.82 |
| 2013 | $2.55 |
| 2012 | $2.19 |
| 2011 | $1.85 |
| 2010 | $1.66 |
| 2009 | $1.75 |
Dividend History
USB Dividend data by YCharts
Conclusion:
US Bancorp is suitable for Enterprising Investors but not Defensive Investors, who are concerned about the lack of growth over the last ten years.  Enterprising Investors have a shorter horizon of analysis and are very intrigued by the company.  As a result, Enterprising Investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and comparing the company to other opportunities such as through a review of JP Morgan Chase (JPM) and Bank of America Corp (BAC).  From a valuation perspective, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.66 in 2010 to an estimated $2.82 for 2014.  This solid level of growth outpaces the market’s implied estimate of 2.88% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that is well above the market price.
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on US Bancorp (USB)?  Where do you see the company going in the future?  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: Â The author did not hold a position in US Bancorp (USB) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.
Logo taken from the Wikipedia; this article is not affiliated with the company in any manner.
