5 Reasons to Buy U.S. Bancorp (USB) Over Wells Fargo (WFC) - Piper Jaffray

Piper Jaffray analyst, Kevin Barker prefers U.S. Bancorp (NYSE: USB) over Wells Fargo (NYSE: WFC) for the coming year for 5 reasons:

1) USB is trading in-line to slightly below WFC on FY16E and FY17E P/Es after receiving a 1.0-1.5x premium for the past several years

2) WFC reserve releases have slowed and will no longer be a tailwind to earnings

3) WFC faces additional capital restraints being a G-SIFI (which USB does not face as a non-G-SIB bank)

4) USB is likely to continue returning 60-80% of earnings to shareholders whereas WFC could be capital constrained in 2016 CCAR

5) USB recently announced an efficiency initiative that is expected to increase operating leverage in spite of the low rate environment.

WFC has historically traded at 1.0-1.5x multiple discount to super regional peers and 1.5x discount to USB from 2010-2012 on forward P/E estimates. This gap has existed primarily due to the oversized legacy mortgage litigation WFC has faced and the below average loan growth experienced at G-SIBs (Global Systematically Important Banks) vs. regional banks. Considering the outsized regulation that WFC faces as a G-SIB and the potential for USB to show increasing operating leverage from recently announced efficiency initiatives, we would expect WFC to trade at a discount to USB rather than at parity as is the case presently.

The firm maintained an Overweight rating price target of $49 on USB, while they have a Neutral rating and $51 price target on Wells Fargo.

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 $43.77 yesterday.

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