Compass Point Lowers Price Target On U.S. Bancorp As Price Reflects Consistency

In a report published Thursday, Compass Point analyst Kevin Barker reiterated a Neutral rating on U.S. Bancorp (NYSE: USB), but lowered the price target from $43.00 to $42.00.

In the report, Compass Point noted, “We maintain our Neutral rating and lower our price target to $42 from $43 following the release of 4Q14 earnings. We have lowered our target primarily due to a decline in our core PPNR estimate from higher operating expenses. USB reported operating EPS of $0.78, beating the consensus and our estimate by $0.01. Core PPNR was slightly below our estimate due to elevated expense levels caused by increased spending on risk and compliance activities (a theme across all banks this Q) and marketing expenses. The elevated expense levels will likely persist into 2015 and have impacted our operating expense forecasts.

"Despite higher operating expenses, USB was able to buck the trend by reporting higher NII as the NIM stayed relatively stable in a competitive loan environment. Although the quarter was not great by USB's lofty standards, the company remains well positioned to grow earnings over the long-term as it continues to show outsized loan growth and return a healthy amount of capital to shareholders. We are positively biased on shares of USB given it remains one of the best managed large cap regional banks. However, in an expansionary economic environment, the company will tend to lag regional bank peers due to its conservative lending strategy and elevated valuation near 2.5x TBV. Our FY15E and FY16E EPS estimates remain at $3.25 and $3.46, respectively. Our estimates do not assume a rise in rates.”

U.S. Bancorp closed on Wednesday at $42.20.