U.S. Bancorp Earnings: Capital Building Process Accelerates, Profitability Outlook Dims Slightly

Key Morningstar Metrics for U.S. Bancorp

• Fair Value Estimate: $52.00
• Morningstar Rating: 5 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of U.S. Bancorp’s Earnings

U.S. Bancorp USB reported what we consider another average quarter. Third-quarter earnings per share of $0.91 was a slight miss versus the FactSet consensus estimate of $0.96, but it was ahead of our own expectations due to lower provisioning. Net interest income, or NII, was within 1% of our expectations, while fees and expenses were essentially in line. Deposit costs ran a little higher than we projected, although assuming we are nearing the end of the current rate cycle, we would expect funding movements to slow down.

There were some slight updates to the company’s outlook, as the latest guidance implies fees and NII will come in on the low end of management’s previous guidance ranges, while integration-related charges are now set to be $1.1 billion for the year, compared with $900 million to $1 billion previously. Management also confirmed that it expects NII to bottom in the fourth quarter of 2023. These are all minor changes, although they do imply a slightly lower NII run rate than we were projecting. Meanwhile, other items updated by the company were essentially in line with our previous expectations.

As we incorporate a slightly lower NII outlook for U.S. Bancorp, we do not expect a material effect on our current fair value estimate of $52 per share, although a low-single-digit percentage decline in our fair value is possible. We believe the company’s shares remain undervalued, even after the latest runup following the announcement that the bank was no longer subject to Category II requirements by the end of 2024.