U.S. Bancorp’s Stock Performance: Navigating a Mixed Year

Year-to-Date Performance Falls Short

U.S. Bancorp’s stock (NYSE: USB) has seen a 23% increase in value so far this year. Although this is a positive trajectory, it still lags behind the S&P 500, which has risen approximately 28%, and the banking leader JPMorgan, whose stock is up 47%. So, what factors are influencing U.S. Bancorp’s stock movement?

Third Quarter Results Face Challenges

The bank delivered stronger-than-expected results in Q3 2024, reporting total revenues of $6.86 billion, a 2% decline from the previous year, attributed to lower interest and non-interest income. Net interest income also fell by about 2.5% year-over-year, reaching $4.17 billion as net interest margins contracted. In order to keep customers, many U.S. banks have been increasing interest rates on deposits, reflecting a shift in customer preferences towards higher-yield options. Despite these declines, net income increased by 12.5% to $1.6 billion, largely due to lower noninterest expenses and decreased taxes. However, these gains were offset by lower total net revenue and increased provisions for credit losses, contributing to greater volatility given the current uncertainties in interest rates.

Provisions for Bad Loans Increase

Like many of its peers, U.S. Bancorp has elevated its provisions for potential losses due to mounting default risks linked to high interest rates that affect mortgages and credit cards. In Q3, the bank’s credit loss provisions climbed to $557 million, an increase of about 8% from last year. In terms of shareholder returns, U.S. Bancorp has announced a new share repurchase plan of up to $5 billion, set to initiate in early 2025, and raised its annual dividend by about 2% to $2 per common share.

Volatility Over the Last Four Years

U.S. Bancorp’s stock has experienced inconsistent returns over the past four years, demonstrating volatility in line with the S&P 500. The stock saw a 24% gain in 2021, followed by a 19% drop in 2022, and then a modest 5% rise in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, composed of 30 stocks, has consistently outperformed the S&P 500 without the same level of fluctuation. This trend raises questions about whether U.S. Bancorp might continue to underperform the S&P 500 in the coming year, particularly given the uncertain macroeconomic landscape marked by potential rate cuts and geopolitical tensions.

Looking Ahead: Potential Opportunities and Challenges

There may be reasons for optimism moving forward. U.S. Bancorp’s net interest income might rebound, bolstered by Federal Reserve rate cuts that began in September. Additionally, a potential second term for Donald Trump could influence the financial sector positively, as his administration previously favored deregulation, which may enhance lending activity and reduce compliance expenses for banks, thus driving profitability. Given these factors, we value U.S. Bancorp stock at about $50 per share, roughly in line with its current market price.

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

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.