On Monday, Morgan Stanley raised its rating for U.S. Bancorp (NYSE:USB) stock from Equalweight to Overweight, adjusting its price target to $57.00 from $54.00. The financial institution is projected to see significant net interest margin (NIM) expansion by the fourth quarter of 2025.
The upgrade reflects Morgan Stanley's anticipation of U.S. Bancorp achieving the second-largest NIM expansion among large-cap banks in their coverage. Analysis by the firm suggests that U.S. Bancorp's NIM could grow by 20 basis points by the end of 2025. This growth is expected to be driven primarily by the bank's deposit repricing strategies.
According to Morgan Stanley, U.S. Bancorp's net interest income (NII) for 2025 is estimated to be 4.8% higher than the consensus, which is the highest among its peers. Additionally, its NIM for the fourth quarter of 2025 is projected to be 10 basis points above the consensus, ranking second highest.
The bank's interest-bearing deposit beta was 52% as interest rates increased, and the same beta is assumed as rates decrease. This beta is consistent with the rest of Morgan Stanley's coverage. U.S. Bancorp's advantage comes from its high concentration of interest-bearing deposits, which make up 83% of their deposit base — the highest among super-regional banks and one of the highest in Morgan Stanley's coverage.
In other recent news, U.S. Bancorp has issued $10 million in senior notes due 2029, as part of its broader strategy to manage its capital and financial needs. The company also announced a significant $5 billion share repurchase program expected to commence in early 2025.
Analyst firms Evercore ISI, Baird, and BofA Securities have maintained their respective In-Line, Neutral, and Buy ratings for U.S. Bancorp, reflecting confidence in the bank's financial outlook.
Furthermore, U.S. Bancorp has increased its regular quarterly dividend by 2 percent, signaling a positive outlook for revenue growth and operational efficiency. The bank also indicated a lack of interest in whole bank mergers in the near term. These are some of the recent developments for U.S. Bancorp.
The bank's recent virtual investor meeting provided insights into their revenue growth potential, share buyback plans, and net interest income dynamics. Analysts from Evercore ISI, Baird, and BofA Securities echoed this optimistic outlook, with BofA Securities highlighting that the bank's financial outlook aligns with or exceeds market expectations.
Lastly, U.S. regulators are expected to introduce significant revisions to bank capital rules, potentially easing the market-risk requirement for the nation's largest banks.
InvestingPro Insights
U.S. Bancorp's strong financial position, as highlighted by Morgan Stanley's upgrade, is further supported by data from InvestingPro. The bank's market capitalization stands at $70.97 billion, reflecting its significant presence in the banking sector. With a P/E ratio of 14.49, U.S. Bancorp appears to be reasonably valued compared to industry peers.
InvestingPro Tips reveal that U.S. Bancorp has maintained dividend payments for an impressive 54 consecutive years, demonstrating a commitment to shareholder returns. This aligns with the bank's high shareholder yield, another positive indicator for investors. The company's dividend yield of 4.4% is particularly attractive in the current market environment.
The bank's revenue of $25.11 billion for the last twelve months and an operating income margin of 31.46% underscore its robust financial performance. These metrics support Morgan Stanley's optimistic outlook on U.S. Bancorp's potential for net interest margin expansion and net interest income growth.
For investors seeking more comprehensive analysis, InvestingPro offers additional insights with 7 more tips available for U.S. Bancorp. These tips could provide further context to the bank's financial health and growth prospects, complementing the positive outlook presented in Morgan Stanley's upgrade.
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