At the moment, big bank stocks appear to be a steal, so investors have been paying close attention to these stocks. The success in the industry makes it so most bank stocks are decent investments at the moment. There are decent investments, however, and there are good investments. U.S. Bancorp (USB) is one that I would consider a good investment. It has been very resilient to negative trends that affect the industry, and the recent news surrounding the company has been largely positive. As a result, I think that U.S. Bancorp stock will be improving for some time to come.
U.S. Bancorp is looking to increase its profits, as it has recently chosen to raise overdraft fees, bringing the fees in line with the industry average of roughly $35. Over time, banks have come to rely heavily on fees to generate huge revenues, and this increase will do exactly that. Although the move is only a $2 increase, this will bring huge returns as a result of the number of overdrafts. Unfortunately, rises in overdraft fees often upset customers, so this may hurt the company in this way. These positive and negative effects should cancel each other out, making this a rather neutral event for U.S. Bancorp.
U.S. Bancorp is growing in more positive ways as well. It has just announced that it will invest in a $250 million fund to finance rooftop solar panel projects. This is one of six solar projects that U.S. Bancorp has recently invested in, and it is part of a $440 million dollar investment goal for renewable energy projects. The projected revenues for solar panel projects are both adequate and stable, so many banks are rushing to be part of this revenue stream. Since the owners who undertake solar panel projects are typically those with higher-than-average incomes, investors have few concerns about default rates for those installing solar panels. Additionally, government subsidies help fund these projects, which also helps keep the default rate low.
There is even more good news for the company though. U.S. Bancorp is considered an underpriced stock by many. Investors are flocking to bank stocks, as the post-financial crisis prices have been nearly cut in half. The price-to-book ratios of most big banks are under half their pre-financial crisis ratios, implying that these stocks can be picked up for a steal. JP Morgan Chase (JPM) and Bank of America (BAC) have fallen on hard times though, so while this is enticing, one must use caution. This is great news for more successful banks like U.S. Bancorp though. The low price-to-book ratio should help attract new investors to the stock, leading to rises in the stock price.
The stock looks like a good investment in other ways as well. The KBX Bank Index indicates that U.S. Bancorp has had the best returns of all banks over the previous two years. Over the past two years, U.S. Bancorp produced a 34 percent return with relatively low volatility compared to the market. It should be noted that major investment banks JP Morgan Chase and Citigroup (C) were among the lowest stocks regarding two-year returns. This is not particularly surprising, but it does show how U.S. Bancorp is standing above its competition.
As I noted earlier, there has been an upward trend in the banking industry, so U.S. Bancorp is not alone atop the industry. There is significant competition, as there is a lot of money to be had in this sector.
PNC Financial Services (PNC) has become a leading competitor, and its gains have been on par with those of U.S. Bancorp. PNC recently received bad news, as it will have to increase its reserves by $350 million to repurchase bad mortgages, bringing its losses up to $1.6 billion. This news was only a minor hiccup though, as the company barely dropped in price at all. Much like U.S. Bancorp, it has weathered bad news well, which results from its strong ability to raise revenue from different sources. I expect this stock to remain at a fairly stable price for the moment, but it will likely increase in the future, as it is still in a very strong position.
Wells Fargo (WFC) has also been very strong recently, and I see no signs of this changing. With the mortgage market beginning to show signs of stability, Wells Fargo has set a goal of having 40% of the home lending market. It has been receiving much positive publicity for largely increasing its profits over the past year. Once it clears the bad debt from its balance sheet, it will be poised to surpass all other banks as the most profitable in the market. Even for the moment, its confidence and its recent success should attract investors to this stock and help the stock price increase.
PNC and Wells Fargo certainly pose competition to U.S. Bancorp, especially with how Wells Fargo has recently been receiving much attention for its profitability. All of these stocks, however, are receiving positive reviews and should be doing well as a result of these.
If you have been following U.S. Bancorp or the industry in general, most of this should not surprise you. The fact that analyst after analyst reiterates this information, however, should mean something. The financials and the growth potential at U.S. Bancorp make it a much sought-after stock. It has proven itself resilient and shown that it can find new ways to generate revenue. In this regard, it beats much of the competition. Expect this stock to do exactly what analysts say it will-grow and profit. As a result of its strength, the positive moves it is making, and the continued confidence of analysts, this stock will do quite well as time moves forward.