Up 23% This Year, What’s New With U.S. Bancorp Stock?

U.S. Bancorp’s stock (NYSE: USB) has risen by about 23% year-to-date. This is below the S&P 500 which gained about 28% over the same period and also well below banking bellwether JPMorgan which is up 47% over the same period. So what’s happening with U.S. Bancorp’s stock?

The bank posted a better-than-expected set of results in the third quarter of 2024. It reported total revenues of $$6.86 billion – down 2% year-over-year due to lower interest and non-interest-related income. Net interest income fell by about 2.5% year-over-year to $4.17 billion, as net interest margins declined. In recent quarters, U.S. banks have been offering higher interest rates on deposits, in order to retain customers who have been increasingly seeking better returns through higher-yield alternatives. However, net income grew by 12.5% to $1.6 billion primarily due to lower noninterest expenses, as well as lower income tax expenses. However, this was partially offset by lower total net revenue, including net securities losses as well as an increase in the provision for credit losses. Uncertainty over rates and future rate cuts can increase volatility. Separately, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.

Banks in general have increased their provisions for losses from bad loans as high interest rates have boosted default risks on mortgages and credit-card debt. U.S. Bancorp’s provisions for credit losses rose to $557 million in Q3, up around 8% compared to last year.  U.S. Bancorp has marginally raised its capital return program. It recently instituted a new share repurchase plan of up to $5 billion, with plans to begin repurchasing shares by early 2025. The company also raised its annual dividend by about 2% to $2 per common share. Also, see What’s Happening With JPMorgan Stock

The increase in USB stock over the last 4-year period has been far from consistent and has largely been as volatile as the S&P 500. Returns for the stock were 24% in 2021, -19% in 2022, and 5% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is less volatile. And it has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could USB face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

Looking ahead, things could get better. The company’s net interest income could pick up driven in part by the Federal Reserve rate cuts which started in September. Separately, the election of Donald Trump to the U.S. presidency for a second term is also expected to benefit the financial sector at large. Investors are betting that the Trump administration’s focus on deregulation could translate into a more lenient approach to bank oversight versus the Biden administration. This could help banks boost their revenues via higher lending activity, as well as potentially lower compliance costs which could boost profitability. Trump has also favored tax cuts, which could also help the bottom lines of banks such as US Bancorp. We value U.S. Bancorp stock at about $50 per share, which is roughly in line with the current market price. See our analysis of  U.S. Bancorp’s valuation.

[1] Returns as of 12/11/2024
[2] Cumulative total returns since the end of 2016

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