US Bancorp Valuation – August 2016 $USB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  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 or by reviewing the 10 Companies Benjamin Graham Would Invest In Today - July 2016.  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 stock analysis showing a specific look at how U.S. Bancorp (USB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): U.S. Bancorp is a multi-state financial services holding company. The Company’s banking subsidiary, U.S. Bank National Association, is engaged in the general banking business in domestic markets. It provides a range of financial services, including lending and depository services, cash management, capital markets, and trust and investment management services. It also engages in credit card services, merchant and automated teller machines (ATMs) processing, mortgage banking, insurance, brokerage and leasing. U.S. Bank National Association provides a range of products and services to individuals, businesses, institutional organizations, governmental entities and other financial institutions. Its lending services include traditional credit products, as well as credit card services, leasing financing and import/export trade, asset-backed lending and agricultural finance. Its depository services include checking accounts, savings accounts and time certificate contracts.

USB Chart

USB data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of USB – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $74,060,969,549 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 88.02% Pass
5. Moderate PEmg Ratio PEmg < 20 13.84 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.57 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

USB value chart August 2016

EPSmg $3.11
MG Growth Estimate 6.33%
MG Value $65.78
Opinion Undervalued
MG Grade C+
MG Value based on 3% Growth $45.07
MG Value based on 0% Growth $26.42
Market Implied Growth Rate 2.67%
Current Price $43.02
% of Intrinsic Value 65.40%

U.S. Bancorp qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.19 in 2012 to an estimated $3.11 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.67% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into U.S. Bancorp revealed the company was trading above its Graham Number of $41.67. The company pays a dividend of $1.02 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.84, which was above the industry average of 13.43.

U.S. Bancorp receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

USB charts August 2016

Graham Number $41.67
PEmg 13.84
PB Ratio 1.57
Dividend Yield 2.37%
TTM Dividend $1.02
Number of Consecutive Years of Dividend Growth 6


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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Long-Term Debt & Capital Lease Obligation $36,941,000,000
Total Assets $438,463,000,000
Intangible Assets $44,420,000,000
Total Liabilities $391,073,000,000
Shares Outstanding (Diluted Average) 1,731,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.18
Dec2015 $3.16
Dec2014 $3.08
Dec2013 $3.00
Dec2012 $2.84
Dec2011 $2.46
Dec2010 $1.73
Dec2009 $0.97
Dec2008 $1.61
Dec2007 $2.43
Dec2006 $2.61
Dec2005 $2.42
Dec2004 $2.18
Dec2003 $1.93
Dec2002 $1.65
Dec2001 $0.88
Dec2000 $1.50
Dec1999 $2.06
Dec1998 $1.78
Dec1997 $1.11
Dec1996 $1.57

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.11
Dec2015 $3.02
Dec2014 $2.84
Dec2013 $2.54
Dec2012 $2.19
Dec2011 $1.85
Dec2010 $1.66
Dec2009 $1.75
Dec2008 $2.17
Dec2007 $2.41
Dec2006 $2.32
Dec2005 $2.05
Dec2004 $1.79
Dec2003 $1.60
Dec2002 $1.48
Dec2001 $1.42
Dec2000 $1.66

Recommended Reading:

Other ModernGraham posts about the company

Best Stocks to Invest In: the Bank Industry – August 2016
5 Companies for the Defensive Investor Near 52 Week Lows – July 2016
15 Best Stocks For Value Investors This Week – 2/13/16
U.S. Bancorp Valuation – February 2016 $USB
12 Best Stocks For Value Investors This Week – 11/7/15

Other ModernGraham posts about related companies

Bank of New York Mellon Corp Valuation – August 2016 $BK
Best Stocks to Invest In: the Bank Industry – August 2016
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Citigroup Inc Valuation – July 2016 $C
Bank of America Corp Valuation – July 2016 $BAC
Fifth Third Bancorp Valuation – July 2016 $FITB
Zions Bancorp Valuation – June 2016 $ZION
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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