As of July 18, 2023, U.S. Bancorp (USB, Financial) is trading at $36.55 per share, indicating a 3.66% increase in the day's change. With a market cap of $56 billion, this financial giant seems to be significantly undervalued, according to the GF Value of $54.86. But what does this mean for potential investors?
U.S. Bancorp, one of the nation's largest regional banks, is a diversified financial-services provider with branches in approximately 26 states, primarily in the Western and Midwestern United States. The bank offers a broad range of services, including retail banking, commercial banking, trust and wealth services, credit cards, mortgages, and other payments capabilities.
GF Value: A Deeper Dive
The GF Value is a unique indicator of a stock's intrinsic worth. It is calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given U.S. Bancorp's current price and market cap, the stock appears to be significantly undervalued.
Since U.S. Bancorp is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength and Profitability
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company’s financial strength before purchasing shares. U.S. Bancorp's cash-to-debt ratio of 0.68 ranks worse than 65.64% of companies in the Banks industry, indicating poor financial strength.
A company with high profit margins typically offers better performance potential. U.S. Bancorp has been profitable for 10 years over the past 10 years, with revenues of $25.8 billion and an EPS of $3.76 in the past 12 months. However, its operating margin of 0% ranks worse than 0% of companies in the Banks industry, indicating fair profitability.
Growth and ROIC vs WACC
Growth is a critical factor in a company's valuation. U.S. Bancorp’s 3-year average revenue growth rate is worse than 63.93% of companies in the Banks industry. Its 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of companies in the Banks industry.
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). U.S. Bancorp’s ROIC for the past 12 months is 0, and its cost of capital is 6.36.
Conclusion
In conclusion, U.S. Bancorp (USB, Financial) appears to be significantly undervalued. Despite poor financial strength and fair profitability, its growth ranks worse than 0% of companies in the Banks industry. To learn more about U.S. Bancorp stock, you can check out its 30-Year Financials here.
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