Why It Makes Sense to Own U.S. Bank

| About: U.S. Bancorp (USB)
Despite the 12 percent decline in the financial sector so far this year and better than expected earnings from Citicorp (NYSE:C) and JPM Morgan (NYSE:JPM) last week, it is still hard to bite the bullet and recommend buying a U.S. Bank other than JP Morgan. Ironically, the one exception is U.S. Bank (NYSE:USB).
U.S. Bancorp, a financial services holding company, provides various banking and financial services in the United States. It generates various deposit products, including checking accounts, savings accounts, money market savings, and time certificates of deposit accounts. The company originates a portfolio of loans comprising commercial loans and lease financing; commercial real estate; residential mortgage; and retail loans consisting of credit cards, retail leasing, home equity and second mortgages, and other retail loans. It also offers wholesale lending, equipment finance, small-ticket leasing, depository, treasury management, capital markets, foreign exchange, and international trade services to middle market, large corporate, commercial real estate, and public sector clients.
10 reasons I think U.S. Bank at under $25 is a strong buy:
  1. USB is selling at less than 12 times this year’s projected earnings and under 10 times 2012’s consensus EPS.
  2. It has consistently beat earnings estimates over the last four quarters and consensus estimates for 2011, have been raised over the last ninety days.
  3. It has an A+ rated balance sheet and yields two percent.
  4. It is in the bottom half of its five year valuation range based on P/E, P/S, P/B and P/CF.
  5. USB had deposit growth of 7% year over year and loan growth was 4% over the same time period as of last quarterly report
  6. USB’s revenue is improving and should average more than 6% for both 2011, and 2012.
  7. USB’s credit quality is high relative to peers and declines to loan loss provisions should be a major driver of earnings both in 2011, and 2012.
  8. US Bancorp is a core holding of Warren Buffett and more than 30 major hedge funds.
  9. It is trading right at a very strong short term technical level (See Chart)

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10. At under $25 a share, USB is priced significantly under analysts’ price targets. S&P has a price target of $29, Credit Suisse is at $31, Jefferies is also at $29 on USB.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in USB over the next 72 hours.