USB Rises After Earnings

US Bancorp (USB) jumped nearly 7% today after reporting second-quarter results. EPS was $1.12 vs. $1.16 in the first quarter and $1.09 in the second quarter of 2022. Results were $0.02 lower than expectations. In addition, management is looking for further net interest margin pressure and higher loan losses in coming quarters.

However, these negatives were outweighed by an improving capital position, which I said in this month’s issue was the key for the stock. The bank’s Common Equity ratio improved from 8.5% in the first quarter to 9.1% at the end of the second quarter, with 0.2% of the improvement coming from this quarter’s earnings and another 0.4% from de-risking the company’s portfolio of securities held for sale. Management expects the ratio to improve to 9.5% by year. This news probably led to a lot of shorts covering their stock, helping to push USB higher today

I am retaining my $42 target, which is 10.5X 2024 EPS of $4.00 . . . down from $4.40 this year as credit costs rise. If we can avoid a recession, this target is conservative. USB is a buy below $37.