By Sam Boughedda
Baird upgraded U.S. Bancorp (NYSE:USB) to Outperform from Neutral with a $52 price target in a note to clients on Monday, telling investors that, in their view, the regional bank risk/reward trade-off remains very attractive.
"After the KBW Bank Index fell 15%+ last week, we believe this is one of the best risk/reward trade-offs in this group that we have seen in our 23-year career," said Baird analysts.
The firm stayed positive on US bank stocks and said they 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 market is currently pricing in 40%-50% permanent reduction in ROAs, which is beyond silly, in our opinion," they said.
Speaking on USB, the analyst said that "with the stock below ~4x PPNR, ~6.6x EPS, ~7.5% cap/assets, and close to a ~6% yield, this is a rare opportunity to take a position in this high-quality regional bank with little to no downside and ~50% upside over time.
"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 their funding risk at smaller regionals."