U.S. Bancorp's relative strength in a tough quarter for many banks earned it an upgrade early Thursday, setting the stage for a second day of gains for the Minneapolis-based bank.
U.S. Bancorp, the eighth-biggest American bank by assets, said Wednesday that its net income rose 14 percent in the third quarter. The results were helped by strong growth in the company's commercial and mortgage loan portfolios and solid fee income.
The quarter, while hardly a blockbuster, showed that U.S. Bancorp is doing better than its peers in key areas like interest income, which measures the profitability of a bank's lending.
The company's "solid execution and above average returns should drive relative out-performance amongst peers," said Jack Micenko, an analyst with Susquehanna Financial Group, in a note to clients.
Susquehanna upgraded U.S. Bancorp to "Positive" from "Neutral" and raised its 12-month price target for the stock to $40 from $34.
Banks' third-quarter earnings reports so far have reflected modest loan growth and intense pressure on net interest income, a measure of their ability to make money from its lending. Net interest income includes interest paid to the bank by borrowers and interest paid by the bank to depositors and other lenders.
Many banks are reporting lower net interest income because ultra-low interest rates and competition for customers are forcing them to offer loans at rock-bottom interest rates. Yet U.S. Bancorp's net interest income rose 6 percent from the same period a year earlier.
U.S. Bancorp's strong loan growth and relatively stable net interest margin _ the ratio of net interest income to average loans _ suggest that it is healthier than competing banks, Susquehanna said.
The analyst also lauded U.S. Bancorp's diverse mix of fee income, which insulates it from the challenge of low interest rates.
Excluding acquisitions of other banks, U.S. Bancorp has expanded its loan book by 15 percent since 2010, the analyst said. That compares with an average growth rate among its peers of about 4 percent, he said.
U.S. Bancorp offers checking and savings accounts, holds billions in consumer and commercial loans and provides specialized financing for agriculture and equipment. Among its other business lines are private banking, financial advisory, investment management and brokerage services. As of Sept. 30, it operated 3,086 banking offices in 25 states and 5,080 ATMs.
U.S. Bancorp rose 10 cents to $34.30 in thin premarket trading.
The stock closed up 59 cents, or 1.9 percent, at $34.20 on Wednesday. It traded a year ago around $23, and is up 26 percent since the start of the year.