Monday, December 17, 2007

* Stock Analysis: USB

Linked here is a PDF copy of my detailed analysis of U.S. Bancorp (USB) (alt.1, alt.2). Below are some highlights from the above linked analysis:

Company Description: U.S. Bancorp operates as the holding company for U.S. Bank that provides commercial banking and financial services in the United States.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description: 1.) Avg. High Yield Price, 2.) 20-Year DCF Price, 3.) Avg. P/E Price and 4.) Graham Number. USB is trading at a discount to two of the four valuations listed above. If I exclude the high and low valuation, and average the remaining two valuations, USB is trading at a 1.6% discount. USB gets a Star for being fairly valued.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description: 1.) Rolling 4-yr Div. > 15%, 2.) Dividend Growth Rate, 3.) Years of Div. Growth, 4.) 1-Yr. > 5-Yr Growth and 5.) Payout 15% of avg. USB only earned one Star in this section for 3.) above - it has grown dividends for 10+ years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description: 1.) NPV MMA Diff. and 2.) Years to >MMA. USB earned Stars for both 1.) and 2.) above.

Other: USB is a member of the S&P 500 Dividend Aristocrats and the Broad Dividend Achievers™ Index. From a recent S&P analysis: "USB remains one of the most profitable large cap banks in our coverage universe, in terms of returns on equity and assets, which highlights the company's focus on revenue growth and cost controls, and what we see as its attractive mix of high margin fee businesses. We believe that the company's diversified revenue model of economically sensitive businesses, combined with our projection of accelerating growth in commercial lending and USB's strong focus on expense management, will generate above industry average profitability."

Conclusion: USB earned one Star in the Fair Value section, one Star in the Dividend Analytical Data section and two Stars in the Dividend Income vs. MMA section for a total of Four Stars which rates it as a 4-Star Buy.

Disclaimer: As always this is only my opinion and you should not rely on it. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I own shares of USB.

What are your thoughts on USB?

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