After falling by more than 50% during the depths of the economic crisis, US Bancorp (USB) is back to being its steady self and has almost recovered all of its losses. Investors have returned to the stock in a hurry, and the optimism is seen in the chart, as the stock is currently just below its 52 week highs.
Analysts suggest that the stock is overvalued at these levels and the forward P/E valuation metric, although not the best comparison metric because of the high quality of USB's assets and earnings, also suggests that the stock is overvalued. However, US Bancorp is a unique case and comparing it to the nation's other big banks may not tell the full story as it has consistently traded at premium multiples.
Leaning on the trailing valuation metric may be a better move here because US Bancorp stands in a class of its own. It suggests that the stock is undervalued at these levels. Below is a closer look at the valuation metrics so you can judge for yourself.
Valuation: US Bancorp's trailing 5 year valuation metrics suggest that the stock is undervalued as the two critical valuation metrics for banks are below their respective 5 year averages. US Bancorp's current P/B ratio is 1.8 and it has averaged 2.1 over the past 5 years with a high of 3.1 and low of 1.3. US Bancorp's current P/E ratio is 11.9 and it has averaged 15.6 over the past 5 years with a high of 27.3 and low of 10.5.
Price Target: The consensus price target for the analysts who follow US Bancorp is $32. That is upside of 9% from today's stock price of $29.3 and suggests that the stock is overvalued at these levels.
Forward Valuation: US Bancorp is currently trading at about $29 a share with analysts expecting EPS of $2.92 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 10. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. Wells Fargo (WFC) is currently trading at about $31 a share with analysts expecting EPS of $3.61 next year, an earnings increase of 13% y/y, for a forward P/E ratio of 8.6.
JP Morgan (JPM) is currently trading at about $39 a share with analysts expecting EPS of $5.37 next year, an earnings increase of 15% y/y, for a forward P/E ratio of 7.3. Bank of America (BAC) is currently trading at about $8 a share with analysts expecting EPS of $1.09 next year, an earnings increase of 54% y/y, for a forward P/E ratio of 7.4. The mean forward P/E of US Bancorp's competitors is 7.7 which suggests that US Bancorp is overvalued relative to its publically traded competitors.
Earnings Estimates: US Bancorp has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 1 cents and 7 cents from consensus estimates or about 1.6% to 13.2% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a notable margin which suggests that the stock may experience upside from earnings surprises.
Price Action: US Bancorp is up 4.5% over the past year, underperforming the S&P 500, which is up 5.8%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $28.16 and above its 200 day moving average, which sits at $25.21.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.