Compass Point Cuts Price Target on U.S. Bancorp (USB) Following In-Line 1Q EPS

Compass Point maintained a Neutral rating on U.S. Bancorp (NYSE: USB), and cut the price target to $46.00 (from $48.00), following the company's 1Q earnings release. USB reported in-line operating EPS of $0.76. Despite a jump in provision expense to $330M from an already elevated $305M in 4Q, USB guided to a flat Q/Q provision in 2Q16. The bank also noted that marketing expense would increase $20-$25M beginning in 2Q.

Analyst Jesus Bueno commented, "We maintainour Neutral rating and lower our price target to $46 from $48 following the 1Q16 earnings release. USB reported in-line EPS of $0.76 despite a jump in its provision expense due to negative credit migration within its energy book. USB showed little benefit from the December rate hike relative to peers and we expect NIM will continue to grind down over the remainder of 2016 in the absence of a rate increase. We anticipate that the pressure from lower asset yields and the headwinds from incremental increases in various expense lines (provision, marketing, technology, professional fees) will mute the benefits from the bank's growing asset base and momentum in the payments/processing space. The stock screens as expensive in light of the projected downward pressure on ROTCE in 2016 and 2017 with shares trading at 2.3x TBV (vs. peers at 1.4x) and at 13.0x 2016 EPS. (vs. peer avg. at 12.1x). USB also currently has a consent order in place which prevents the bank from utilizing its premium currency towards an accretive bank acquisition. We are adjusting our FY16E operating EPS estimate to $3.29 from $3.35, and reduce our FY17E estimate to $3.42 from $3.50 due to expectations for higher provision and operating expense."

For an analyst ratings summary and ratings history on U.S. Bancorp click here. For more ratings news on U.S. Bancorp click here.

Shares of U.S. Bancorp closed at $42.73 yesterday.

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