U.S. Bancorp (NYSE:USB) stock gained about 7% yesterday. The upside comes after the Federal Reserve exempted USB from adhering to the more stringent capital requirements associated with becoming a Category II bank. This news boosted investor confidence as it means the bank won’t have to deal with more expensive and time-consuming regulations.
After U.S. Bancorp acquired MUFG Union Bank in December 2022, the company agreed to submit quarterly plans for implementing the Category II banking requirements by the end of 2024. It is worth highlighting that the Category II designation is reserved for companies with assets exceeding $700 billion. As of June 30, 2023, USB’s assets stood at $680 billion, which is just under the Category II threshold.
U.S. Bancorp had already begun shrinking its balance sheet even before the Fed announced its decision. This included a $30 billion reduction in its investment portfolio, the completion of loan sales and securitizations totaling about $7 billion, and lower short-term borrowing on its balance sheet.
Analyst’s Take
Following the news, UBS analyst Erika Najarian said that U.S. Bancorp not being considered under Category II is a “major, unexpected regulatory victory” for the bank. Further, Najarian noted that, owing to this development, USB will not have to run accumulated other comprehension income through regulatory capital as required by larger banks.
The analyst maintained a Hold rating on USB stock with a price target of $35, which implies a limited upside of 0.32% from the current level.
USB’s Upcoming Q3 Results
U.S. Bancorp is scheduled to release its third-quarter earnings on October 18. Ahead of the release, Bank of America Securities analyst Ebrahim Poonawala maintained a Buy rating on the stock. The analyst believes that the sluggish loan growth, contracting net interest margins, and lower fee income could have impacted USB’s performance in the to-be-reported quarter.
Overall, the Street expects USB to post Q3 earnings of $0.96 per share, showing a 17.2% decline over the prior-year quarter. Similarly, revenue estimates are pegged at $7.02 billion, representing a smaller 5% decrease over the same period last year.
Is USB a Good Stock to Buy Now?
The Street is cautiously optimistic about U.S. Bancorp stock. It has a Moderate Buy consensus rating based on eight Buys and 10 Holds. The average USB stock price target of $41.63 signals that the stock may surge about 19.3% from current levels. Shares of the company are down 18.4% so far in 2023.
