UPDATE: Goldman Sachs Cuts U.S. Bancorp (USB) from CL-Buy to Neutral; Risk/Reward Viewed as Balanced
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(Updated - April 3, 2014 8:56 AM EDT)
Goldman Sachs downgraded U.S. Bancorp (NYSE: USB) from CL-Buy to Neutral with a price target of $45.00 (unchanged).
Analyst Richard Ramsden said, "From a fundamental perspective, we expect USB to see outsized top-line growth in 2014 from (1) an improving capex cycle (C&I loan growth), (2) declining consumer savings rates/accelerating consumer expenditures (consumer payments businesses) and (3) improving government spending (corporate payments businesses). While consensus likely reflects an improving C&I picture, we believe the market is underestimating leverage to the payments side of the business (28% of revenue, coming off a challenging 2013). Furthermore, in a morenegative macro scenario, we feel confident that USB can control the expense line and generate positive operating leverage even without top-line growth."
"That said, with shares up 6% YTD relative to slightly negative EPS revisions, USB now trades at 12.2x 2015E EPS vs. sub-10.0x for money-center banks, 11.5x super-regionals and 12.1x for regional banks. While we believe that this premium multiple is justified by USB’s business mix, leading return on capital and minimal EPS volatility, we view the risk/reward skew at current valuation as relatively balanced," he added.
Shares of U.S. Bancorp closed at $43.05 yesterday.
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