US BANCORP (USB, Financial) is one of the top 10 largest banks in the country with assets of $357 billion at year end 2013. The company has an outstanding credit culture, resulting in few credit losses and generates substantial fee income providing greater stability and predictability in its earnings. In 2013 the company generated $10.9 billion in net interest income and $8.8 billion in fee income. Operating revenues were $19.6 billion and net income was $5.6 billion or $3.00 per share.
The company’s financial metrics are among the best in the industry with a return on common equity of over 16%, return on tangible common equity exceeding 23% and a return on assets of 1.6%. We believe US Bancorp is well positioned to continue to build upon its outstanding franchise both organically and through selective acquisitions in the years ahead. The company should earn in excess of $3.10 in 2014 representing a price earnings multiple of 12.5x earnings-a favorable valuation for an outstanding diversified financial institution. While interest rates remain low, when they do rise the bank is well positioned to grow its net interest income and margins. Furthermore, with a large fee income stream the bank is better able to weather low interest rate periods than most competitors who lack such a large recurring fee income stream.
