• Wondering if U.S. Bancorp at around US$54.48 is still offering value, or if most of the easy gains are already behind it.
• The stock is up 1.0% year to date and 28.0% over the past year, even though it has slipped about 2.0% over the past week and 2.1% over the past month. This suggests the recent pullback sits against a much stronger longer term return profile.
• Recent coverage has focused on U.S. Bancorp's position among large U.S. banks and how investors are reassessing risk and reward for the sector. This helps explain the mix of shorter term weakness and stronger multi year returns. Broader discussions around interest rate expectations and credit quality have also kept large bank stocks, including U.S. Bancorp, in the spotlight.
• The Simply Wall St valuation checklist currently gives U.S. Bancorp a score of 4 out of 6. The next sections will walk through what that means using common valuation methods and then finish with a way to think about value that goes beyond just the usual ratios.

Approach 1: U.S. Bancorp Excess Returns Analysis

The Excess Returns model looks at how effectively U.S. Bancorp turns its equity base into earnings above the return that shareholders require. Instead of focusing on cash flows, it compares the profit generated on each dollar of equity to the estimated cost of that equity.

For U.S. Bancorp, book value is estimated at US$37.94 per share, rising to a stable book value of US$42.01 per share based on forecasts from 8 analysts. Stable EPS is set at US$5.50 per share, sourced from weighted future Return on Equity estimates from 10 analysts. That implies an average Return on Equity of 13.10%.

The model assumes a cost of equity of US$3.20 per share, which leaves an excess return of US$2.30 per share. When those excess returns are projected forward and discounted, the Excess Returns model points to an intrinsic value of about US$98.29 per share.

Against the current share price of roughly US$54.48, this implies the stock is 44.6% undervalued on this basis.

Result: UNDERVALUED

Our Excess Returns analysis suggests U.S. Bancorp is undervalued by 44.6%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Approach 2: U.S. Bancorp Price vs Earnings

For a profitable company like U.S. Bancorp, the P/E ratio is a useful way to link what you pay for each share to the earnings that support that price. It lets you quickly see how many dollars investors are currently paying for each dollar of earnings.

What counts as a "normal" or "fair" P/E depends on how the market views a company's growth potential and risk profile. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk usually supports a lower multiple.

U.S. Bancorp currently trades on a P/E of 11.38x. That sits close to the Banks industry average of about 11.26x and below the broader peer group average of 17.87x. Simply Wall St’s Fair Ratio for U.S. Bancorp is 13.66x. This Fair Ratio is a proprietary estimate of what the P/E might be given factors such as earnings growth, profit margins, industry, market cap and risk, so it can be more tailored than a simple comparison with peers or the sector.

Compared with the Fair Ratio of 13.66x, the current P/E of 11.38x suggests the stock is trading below that level.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your U.S. Bancorp Narrative

Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St’s Community page let you attach a clear story about U.S. Bancorp to your own numbers by linking your view of its future revenue, earnings and margins to a Fair Value that can be compared with the current price. This updates automatically when news or earnings arrive and illustrates how one Narrative might see the stock fairly valued around US$58.09 while another, more optimistic view points to US$63.48. This shows how two investors can look at the same company, use different assumptions, and reach different but clearly explained conclusions about whether the current price around US$54.48 looks attractive or not.

Do you think there's more to the story for U.S. Bancorp? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.