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U.S. Bancorp: Stock Is A Buy, Floating Preferred Is A Hold (NYSE:USB)

  //business-finance.news-articles.net/content/202 .. a-buy-floating-preferred-is-a-hold-nyse-usb.html
  Published in Business and Finance on Friday, October 17th 2025 at 1:22 GMT by Seeking Alpha
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US Bancorp Stock Is a Buy, Floating Preferred Is a Hold
Seeking Alpha Analysis – June 2025

Executive Summary

The latest research note on U.S. Bancorp (NASDAQ: USB) from Seeking Alpha positions the common stock as a buy while downgrading its floating‑preferred shares to a hold. The recommendation hinges on a combination of robust financial performance, a favorable valuation relative to peer averages, and a clear trajectory for earnings growth. By contrast, the floating‑preferred instruments—issued with a 9.5 % coupon and callability after five years—are deemed less attractive given their limited upside and the company’s solid equity base.

1. Financial Performance

a. Revenue and Net Interest Income

In the most recent quarterly earnings release (link: https://investor.usbank.com/earnings), U.S. Bancorp reported a $2.4 billion increase in net interest income, a 15 % year‑over‑year rise. Total revenue climbed to $11.3 billion, up 9 % YoY, driven by higher deposit balances and expanded loan origination. The loan‑to‑deposit ratio improved to 82 %, underscoring stronger asset quality and efficient balance‑sheet management.

b. Profitability Metrics

Operating margin expanded from 46 % to 48 %, while the cost‑to‑income ratio fell to 31 %, comfortably below the peer average of 33 %. Net income surged to $1.25 billion, reflecting a 12 % increase in earnings per share (EPS). The company’s return on equity (ROE) reached 17 %, outperforming the industry median of 13 %.

c. Credit Quality

The non‑performing loan (NPL) ratio remained at 0.9 %, a slight decline from 1.1 % in the prior year. Capital adequacy metrics—Tier 1 ratio at 13.2 % and common equity tier 1 (CET1) ratio at 12.9 %—provide a comfortable buffer above regulatory minimums, which translates to a strong capacity for future growth and shareholder returns.

2. Valuation Analysis

The current market price of $78 per share implies a price‑to‑earnings (P/E) ratio of 18.5x. This sits just below the 10‑year industry average of 19.2x, yet the discounting of the company’s projected free‑cash‑flow growth (average 8 % over the next 5 years) justifies a bullish stance. Discounted cash‑flow (DCF) modeling projects a terminal value that yields a 12 % internal rate of return (IRR) for common shareholders. Additionally, the company’s dividend yield—1.7 %—offers a modest, yet stable, income component.

3. Dividend Policy and Capital Deployment

U.S. Bancorp has maintained a dividend payout ratio of 60 %, with a $0.14 quarterly payout per share. In the last fiscal year, the board approved a $120 million share‑repurchase program, signaling confidence in the firm’s cash‑flow generation and an intent to boost shareholder value. The combination of dividend income and share buybacks positions the stock as a compelling vehicle for both income and capital appreciation.

4. Risk Assessment

5. Floating‑Preferred Shares – Hold Recommendation

The article also evaluates U.S. Bancorp’s floating‑preferred securities—specifically the 9.5 % coupon notes maturing in 2035. The Floating Preferred notes, priced at 96 cents on the market, offer limited upside potential because of the callability clause after five years. Moreover, the yield is undercut by the bank’s robust equity base and the expectation of further dividend distributions. The Seeking Alpha analyst, referencing the broader market sentiment and the bank’s strong credit profile, recommends a hold stance for these instruments.

6. Competitor Landscape

The research note cites a comparative analysis of regional banks in the same market segment. Key competitors such as Comerica (CMRA) and Regions (RF) show similar ROEs but lower net interest margins. U.S. Bancorp’s superior NIM, coupled with its strong deposit growth, provides a competitive edge that bolsters the buy recommendation.

7. Bottom Line

• Common Stock: Buy
  Rationale: Solid earnings growth, attractive valuation, solid capital base, and robust dividend policy.

• Floating‑Preferred Shares: Hold
  Rationale: Limited upside, callable feature, and strong equity base diminishing the relative attractiveness.

Investors looking for a stable, growth‑oriented U.S. banking investment would do well to add U.S. Bancorp to their portfolios while monitoring the floating‑preferred notes for any strategic shifts or redemption events.