Why U.S. Bancorp Shares Might Pull Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of US Bancorp (NYSE: USB  ) sank about 1% on Thursday after Goldman Sachs downgraded the banking giant from conviction list buy to neutral.

So what: Along with the two-notch downgrade, analyst Richard Ramsden reiterated his price target of $45, representing about 5% worth of upside to yesterday's close. So while momentum traders might be attracted to US Bancorp's price strength over the past several months, Ramsden's call could reflect a growing sense on Wall Street that its valuation is getting a bit steep. 

Now what: Goldman remains bullish on US Bancorp's growth prospects, but thinks that the price could be better. "[W]ith shares up 6% YTD relative to slightly negative EPS revisions, USB now trades at 12.2x 2015E EPS vs. sub-10.0x for money-center banks, 11.5x super-regionals and 12.1x for regional banks," noted Ramsden. "While we believe that this premium multiple is justified by USB's business mix, leading return on capital and minimal EPS volatility, we view the risk/reward skew at current valuation as relatively balanced." Given US Bancorp's seemingly stretched relative and absolute valuation, it's tough to disagree with Goldman's downgrade. 

Three stocks poised to be multibaggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multibagger stocks like Netflix time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.


Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 03, 2014, at 9:19 PM, phexac wrote:

    Amazing insight and analysis. Truly worthy of at least 3rd grade.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2902000, ~/Articles/ArticleHandler.aspx, 9/2/2014 5:42:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement