USB Rises Today, But Is Still Off 52 Week High.

Regional Banking company U.S. Bancorp is standing out today, surging to $42.81 and marking a 3.5% change. In comparison the S&P 500 moved only -1.8%. USB is -16.78% below its average analyst target price of $51.44, which implies there is more upside for the stock. However, the average analayst rating for the stock is hold -- a more pessimistic outlook than you might expect. Over the last year, U.S. Bancorp has underperfomed the S&P 500 by 13.4%, moving -31.3%.

U.S. Bancorp's trailing 12 month P/E ratio is 9.9, based on its trailing Eps of $4.34. The company has a forward P/E ratio of 8.5 according to its forward Eps of $5.01 -- which is an estimate of what its earnings will look like in the next quarter.

As of the third quarter of 2022, the average Price to Earnings (P/E) ratio for US financial services companies is 13.34, and the S&P 500 has an average of 15.97. The P/E ratio consists in the stock's share price divided by its earnings per share (Eps), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

The problem with P/E ratios is that they don't take into account the growth of earnings. This means that a company with a higher than average P/E ratio may still be undervalued if it has extremely high projected earnings growth. Conversely, a company with a low P/E ratio may not present a good value proposition if its projected earnings are stagnant.

When we divide U.S. Bancorp's P/E ratio by its projected 5 year earnings growth rate, we obtain its Price to Earnings Growth (PEG) ratio of 1.94. Since a PEG ratio of 1 or less may indicate that the company's valuation is proportionate to its growth potential, we see here that USB is actually fairly valued compared to its projected earnings growth.

To better understand the strength of U.S. Bancorp's business, we can analyse its operating margins, which are its revenues minus its operating costs. Consistently strong margins backed by a positive trend can signal that a company is on track to deliver returns for its shareholders. Here's the operating margin statistics for the last four years:

  • 2021 operating margins: 42.8 %
  • 2020 operating margins: 31.4 %
  • 2019 operating margins: 40.7 %
  • 2018 operating margins: 41.7 %
  • Average operating margins: 39.1 %
  • Average operating margins growth rate: 3.6 %
  • Coefficient of variability (lower numbers indicate less volatility): 13.3 %

U.S. Bancorp's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

  • 2021 free cash flow: $9,870,000,000.00
  • 2020 free cash flow: $3,716,000,000.00
  • 2019 free cash flow: $4,889,000,000.00
  • 2018 free cash flow: $10,564,000,000.00
  • Average free cash flow: $7,259,750,000.00
  • Average free cash flown growth rate: 29.3 %
  • Coefficient of variability (lower numbers indicating more stability): 47.7 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in USB have received an annualized dividend yield of 4.4% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.

U.S. Bancorp has a P/B ratio of 1.5. This indicates that the market value of the company exceeds its book value by a factor of more than 1, but is still below the average P/B ratio of the Financial Services sector, which stood at 1.95 as of the third quarter of 2022.

With a very low P/E ratio, a lower P/B ratio than the sector average, and a steady stream of strong cash flows with an upwards trend, we can conclude that U.S. Bancorp is probably undervalued at current prices. The stock presents mixed growth indicators because of its decent and consistent operating margins that are growing, and an average PEG ratio. Thanks for dropping by! If you liked this article, please subscribe to our newsletter -- it's free and delivered daily!

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.