On Thursday, DA Davidson adjusted its price target for U.S. Bancorp (NYSE: USB) shares, raising it from $44.00 to $49.00, while keeping a Neutral rating on the stock. The firm's analyst highlighted the bank's net interest income, which saw a 0.9% quarter-over-quarter increase in the second quarter of 2024. This growth is coupled with a forecast for better fee income growth in the second half of 2024.
The analyst noted that U.S. Bancorp is expected to experience positive operating leverage in the latter half of 2024 and into 2025, as the bank has completed its phase of heavy investment spending. This completion allows for a more efficient management of expenses, which can be adjusted if revenue falls short, in order to maintain positive operating leverage.
Despite the ability to manage expenses and generate positive operating leverage, the analyst pointed out that investors are currently more concerned with the bank's revenue trends rather than its ability to generate positive operating leverage. This focus on revenue is a key factor in maintaining the Neutral rating on the stock.
The revised price target of $49.00 is based on a target price-to-earnings (P/E) multiple of 11.2 times the firm's 2025 earnings per share (EPS) forecast of $4.34. This update removes the previously applied 5% discount to the bank's valuation.
The new price target reflects the analyst's outlook for U.S. Bancorp's financial performance, considering the recent quarter's results and expectations for the near future. The bank's strategic management of expenses and anticipated income growth are central to this outlook.
In other recent news, U.S. banks, including Citizens Financial (NYSE:CFG), US Bancorp (NYSE:USB), First Horizon (NYSE:FHN), and Synchrony Financial (NYSE:SYF), are grappling with increased deposit costs and dampened loan demand due to the Federal Reserve's quantitative tightening measures. Despite these challenges, the investment banking sector has seen a surge in capital market fees, with Citizens Financial reporting a 63% increase.
On the other hand, concerns have been raised about the health of the banks' commercial real estate loan portfolios, with potential defaults being a risk. Recently, Washington Federal (NASDAQ:WAFD) reported better-than-expected earnings for its third quarter, demonstrating resilience within the banking sector.
In leadership news, U.S. Bancorp announced the departure of Tim Welsh, vice chair of Consumer and Business Banking, and the subsequent appointment of Arijit Roy to lead the Consumer and Business Banking products organization.
Furthermore, U.S. Bancorp saw significant changes within its Wealth, Corporate, Commercial, and Institutional Banking division, promoting Stephen Philipson and Felicia La Forgia to expanded roles.
In terms of analyst ratings, JPMorgan downgraded U.S. Bancorp's stock to neutral, citing increased capital requirements and the absence of a medium-term catalyst. Conversely, Wells Fargo maintains an optimistic stance, predicting a 3% revenue growth for U.S. Bancorp this year, driven by a robust consumer segment and savings from merger synergies.
Analysts from RBC Capital Markets and Barclays Capital Inc. have also given positive ratings to U.S. Bancorp, suggesting strong Net Interest Income expectation and anticipated growth in fee income for 2024. These are recent developments that investors should consider.
InvestingPro Insights
As U.S. Bancorp (NYSE: USB) navigates through its financial phases, recent data from InvestingPro provides a deeper insight into the bank’s current market position. With a robust market capitalization of $70.63 billion and a P/E ratio that has slightly improved to 13.22 in the last twelve months as of Q1 2024, the bank's financial health appears stable. Furthermore, U.S. Bancorp has demonstrated a solid dividend track record, having raised its dividend for 13 consecutive years and maintained dividend payments for 54 consecutive years, which is a testament to its commitment to shareholder returns.
InvestingPro Tips reveal that while U.S. Bancorp has had significant returns over the last week, month, and three months, with price total returns of 7.94%, 16.64%, and 16.19% respectively, analysts have revised their earnings downwards for the upcoming period. Additionally, the bank's stock is trading near its 52-week high, at 98.71% of that peak, which could indicate that it is in overbought territory, as suggested by the RSI metric.
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