US BANCORP DE (USB) stock intrinsic value fair value estimate & owner earnings analysis

U.S. Bancorp is a large U.S. bank holding company. It lends to consumers and businesses, takes deposits, manages wealth, and runs one of the country's bigger payments operations (credit cards, merchant processing and corporate payments). The purchase of MUFG Union Bank, completed in late 2022, added a large West Coast franchise and roughly doubled the amortisation of acquired intangibles. How we measured earnings. A bank's operating cash flow is dominated by mortgage loans being made and sold and by other balance-sheet movements, which swing by tens of billions of dollars from year to year. We removed those movements. We also replaced the accounting estimate for future credit losses (the provision) with the loans the bank actually wrote off, net of recoveries, because loan losses are a permanent cost of lending. Stock compensation ($235 million in 2025) is a real cost and stays charged in net income. Premises and equipment purchases are not broken out in the filing, so we used depreciation of premises ($377 million in 2025) as the maintenance spending. Dividends on preferred stock (about $0.38 billion a year) rank ahead of common shareholders and are deducted. We add back the amortisation of acquired intangibles ($498 million in 2025, down from $636 million in 2023) because it is a sunk acquisition cost, but we credit no benefit from it fading. The result is owner earnings per common share of $3.02, $3.35, $3.94, $4.00, $4.29, $3.70, $4.32, $4.00, $4.28 and $4.95 for 2016 through 2025. Borrowings and deposits are the raw material of a bank, so no debt is subtracted from any case; leverage is charged through credit losses in the bear case. The preferred dividend for 2016 through 2020 is approximated from reported earnings per share; a few small estimates like this could not be checked to the dollar. Starting level. We used $4.60 per share, the midpoint of 2024 ($4.28) and 2025 ($4.95), the two full years since the Union Bank integration. 2023 is excluded because it carried about $1.0 billion of merger and integration charges and a $734 million FDIC special assessment, and years before 2023 describe a smaller bank. Net income of $4.05 billion in the second half of 2025 and $4.12 billion in the first half of 2026, against $3.52 billion in the first half of 2025, show the higher level has held for three consecutive halves. The 2025 figure was not lifted by reserve releases: the provision for credit losses ($2,186 million) almost equalled actual write-offs ($2,164 million), unlike 2021 when the bank released reserves. Growth check. Owner earnings per share grew about 16 percent in 2025 ($4.28 to $4.95). The base case assumes only 3 percent in year one, below that pace, and starts from $4.60, below the 2025 figure, so no reversal of a slowdown is being assumed. Base case: $87.59 per share. Owner earnings grow 3 percent a year for five years and 2 percent a year for the next five, reaching about $5.89 per share in year ten. The growth credited is the retention of earnings inside a bank that has raised owner earnings per share from $3.02 in 2016 to $4.28 in 2024 (about 4.5 percent a year, helped by modest buybacks and the Union Bank deal) through a pandemic, a rate cycle and a merger, funded from its own profits. We use less than that pace. Growth needs capital, so each year we set aside growth rate times tangible common equity per share ($29.12 at the end of 2025) and value only what is left. After year ten we hold earnings flat with nothing retained, because ten consecutive years of positive, resilient owner earnings evidence a lasting deposit and payments franchise, but nothing named supports growth beyond that. Years one to ten are worth $32.80 and everything after is worth $54.79. We left out market growth, market share gains, expected lower interest rates, cost savings and future buybacks: none is secured or already demonstrated. Bear case: $57.14 per share. Credit losses have already risen from $682 million in 2021 to $2,164 million in 2025, and provisions jumped from $1.5 billion to $3.8 billion between 2019 and 2020. Nonperforming assets stand at $1.6 billion, mostly commercial real estate that is being worked out. We assume two years in which write-offs double to about $4.3 billion (a cost of roughly $1.12 per share after tax) and revenue is squeezed as it was in 2021, when owner earnings fell about 14 percent (roughly $0.63 per share). Owner earnings fall to $2.85 per share in years one and two, then settle at $3.50 permanently with no growth, below the 2021 low of $3.70. That is worth $5.23 for the two years plus $51.92 afterwards. The bank appears able to carry its funding costs in this case, since earnings stay positive throughout. Bull case: $101.80 per share. Earnings start from the 2025 level of $4.95, which the first half of 2026 supports, and grow 4.5 percent a year for five years, the pace shown from 2016 to 2024, and 3 percent for the next five, with capital set aside as in the base case, then hold flat. Years one to ten are worth $35.25 and everything after $66.55. Change since our last view. Our earlier estimates were $42.63, $72.80 and $104.05 for bear, base and bull. The new bear and base are higher and the bull is slightly lower: earnings now come from cash flow with actual loan losses charged rather than net income less stock compensation, a flat 6 percent required return is used, and growth is charged for the capital it consumes. We tested the base case against the fact that the 2025 rise was driven by operations rather than reserve releases or securities gains (gains were $1 million), and against the fact that owner earnings stayed between $3.02 and $4.95 in every year of the last ten, including the 2020 pandemic year. What would make this wrong: a credit downturn deeper or longer than the bear case, a regulatory change that forces the bank to hold materially more capital, or a loss of the low-cost deposit base. The margin-of-safety price is $47, about 18 percent under the bear case, because bank earnings swing with credit and interest rates and the price is set to allow for that path.