2023-03-20 07:56:33 ET
U.S. Bancorp ( NYSE: USB ) stock rose 2.7% in Monday premarket trading after Baird analyst David George upgraded the large regional bank to Outperform from Neutral. The bank's recent selloff provides "a rare opportunity to take a position in this high-quality regional bank with little to no downside and ~50% upside over time," he said.
The analyst pointed out that the company's stock is below ~4x preprovision net revenue, ~6.6x EPS, ~7.5% cap/assets, and close to a ~6% yield.
"We are generally constructive on the Union Bank transaction and feel that USB and other super regionals will likely be net beneficiaries from a deposit funding perspective to the extent larger depositors want to mitigate thair funding risk at smaller regionals," George wrote in a note to clients.
He reiterated his stance that regional bank risk/reward remains attractive and have become more so with a 15% drop in the KBW Bank Index ( BKX ) last week.
"The stocks are more inexpensive today than they were during the pandemic, and if you don't buy banks here, we aren't sure when you do," the analyst said. "The market is currently pricing in 40%-50% permanent reduction in ROAs (return on assets), whih is beyond silly, in our opinion."
SPDR S&P Regional Banking ETF ( KRE ) gained 1.2% in premarket, while the SPDR S&P Bank ETF ( KBE )rose 0.8%.
George's Outperform rating contrasts with the SA Quant rating and the average SA Author's rating , both at Hold.
SA contributor Geoff Considine digs into U.S. Bancorp's outlook after its Union Bank acquisition
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U.S. Bancorp upgraded to Buy at Baird as selloff creates 'rare opportunity'