What’s Bancorp’s Valuation?



Stock performance

Bancorp’s (USB) stock has risen 3.2% over the past six months and 3.0% over the past year. Even though the company’s performance has been strong, the litigation cases indicate risk.

Banks (XLF) have managed to perform well in recent quarters in spite of slow momentum and low volatility in capital markets. The Federal Reserve’s indication of rising interest rates could help banks maintain or improve net interest margins. The credit offtake will also be dependent on the overall economy’s performance amid expected Fed rate hikes.

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Bancorp’s premium valuation

Bancorp is now trading at a PBV (price-to-book-value) multiple of ~2x. The bank is trading at a premium to all major banks including Bank of America (BAC), JPMorgan Chase (JPM), and Citigroup (C), which have price-to-book ratios of 1.24x, 1.61x, and 1.01x, respectively. This improvement is due to steady payouts and higher NIMs (net interest margins).

Bancorp’s return on equity (or ROE) improved from 13.1% in 4Q16 to 14.7% in 4Q17. Its asset performance can also be judged by the improvement in the return on average ratio, which has risen from 1.3% in 4Q16 to 1.5% in 4Q17.

The company’s efficiency ratio has improved considerably from 55.3% in 4Q16 to 70% in 4Q17. Bancorp is also maintaining its debt level. The leverage ratio has been improving and stands at 8.9% in 4Q17 in comparison to 9.1% in 3Q17. These improved performance metrics are indicative of the company’s overall strong operations.


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