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In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

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US Bancorp the Value in Banking

I’ve begun to really like bank stocks lately because they’re cheap and fast-growing but produce a lot of income. One of my favorites is US Bancorp (NYSE: USB); popularly known as US Bank, which is beginning to look like one of the best values in the sector.

It is the raw numbers that show why US Bancorp is such a great deal. For a share price of $43.27 on August 19, 2016, here’s what investors got from US Bank:

  • A dividend yield of 2.39%


  • An earnings per share ratio of 3.2


  • A return on equity of 14.4%


Now here’s the cash and income that US Bancorp was using to generate float on June 30, 2016:

  • A net income $5.834 billion.


  • A free cash flow of $1.423 billion


  • $11.16 billion in cash from financing


  • $8.069 billion in cash operations


  • $14.04 billion cash and short-term investments.

The company also had total assets of $438.46 billion on a market capitalization of $74.68 billion and an enterprise value of $122.09 billion for August 19, 2016. That makes it look undervalued to me.

US Bank is Generating a lot of Cash

What I really like here is the way that US Bank puts its money to work, generating $11.16 billion in cash from financing. The number’s down from $23.87 billion in June 2015, but it’s still very impressive for a smaller bank.


What’s more impressive is that cash from operations is up dramatically from last year. US Bank generated just $4.845 billion in cash from operations last year so the number nearly doubled. Although it has not returned to the $8.814 billion the bank reached in June 2014.

There’s also a lot of float here with cash and short-term investments of $14.04 billion; a number that was down from $17.93 billion June 2015, but still looking good. One thing I’ve liked about banks and similar finance companies is the cash.

Not bad for a bank that is largely ignored by the market. If you’re looking for an income-producing bank stock that is very safe US Bank would be a good addition to your portfolio.

US Bancorp is also a good choice for those who are put off by the big monster banks like Wells Fargo (NYSE: WFC) and Bank of America (NYSE: BAC). It was not caught up the mortgage mania or bailouts of the last decade, yet US Bank is still the fifth largest commercial bank in America.

The Threat to Consumer Banking

US Bancorp was able to avoid some of the problems at larger competitors by concentrating on consumer and small business lending in the heartland. This obviously leaves it exposed to the income inequality and wage stagnation plaguing the Midwest; not to mention the economic collapse in the oil patch, but it also provides the company with a fairly stable market for commercial, personal and residential loans.


The core consumer banking business is a bag of mixed opportunities for US Bank. The growing displeasure with the big monster banks is driving more consumers to alternatives such as credit unions, online banks and non-bank payment processors like PayPal (NASDAQ: PYPL).

Around 100 million Americans had joined credit unions as of August 5, 2014, The Credit Union National Association told The Fiscal Times.[1] That number was 16% increase over 2004. Those numbers seemed to be accelerating credit unions added around 2.85 million members between 2013 and 2014 according to the same source.

Banks obviously have a serious customer retention problem that US Bank is in a slightly better position to navigate. Despite that I like US Bank’s long term prospects, especially its capacities to to retain cash, generate cash from financing and pay a healthy dividend.

US Bank should continue to pay a healthy dividend and generate significant float for the foreseeable future. That makes it a good long term buy and hold play in the financial world.

Disclosure: Your Friendly Neighborhood Blogger holds some shares of Bank of America.

[1] Why 100 Million People Bank at Credit Unions The Fiscal Times August 5, 2014.