3 Reasons to Sell US Bancorp

Those of us who tend to focus on the financial sector always have certain banks and financial companies that we tend to keep an eye on. A lot of the focus tends to gravitate toward megabanks like JPMorgan Chase (NYSE: JPM  ) and Bank of America (NYSE: BAC  ) , the two largest banks in the country. This focus is warranted, as moves that both banks make can have major impacts on the sector and financial markets as a whole.

Obviously, there are more banks than the ones that dominate our daily headlines. One such bank is still pretty large when compared with the average bank stock, but it is about 15% the size of JPMorgan Chase. That bank is US Bancorp (NYSE: USB  ) . Earlier this week, I provided three reasons to buy the Minneapolis-based bank. Today, I'll put on my bear hat and provide three reasons why you should consider selling the bank if you currently own shares.

1. Its size works against it
When I was laying out my bull case earlier this week, I said its size can be viewed as a benefit, and under certain circumstances, I truly believe this. But its size can also hamper its future performance. While smaller banks can use smart acquisitions and mergers to grow, this in turn can strengthen balance sheets and expand geographical reach.

This year alone has seen a lot of banks following this strategy. M&T Bank (NYSE: MTB  ) acquired Hudson City Bancorp (NASDAQ: HCBK  ) at a premium, expanding its reach from Connecticut to Virginia. FirstMerit (NASDAQ: FMER  ) announced its acquisition of Citizens Republic (NASDAQ: CRBC  ) in September, an agreement that will grow its footprint in US Bancorp's home region. Finally, as my friend and colleague John Maxfield points out, New York Community Bancorp (NYSE: NYCB  ) is on the verge of $50 billion in assets -- and "stress test" territory -- through its smart acquisitions of failed institutions from the FDIC.

It's not as if US Bancorp is banned from acquiring other banks; I personally think that regional neighbor Huntington Bancshares (NASDAQ: HBAN  ) would be an attractive means of growing its asset base. Most acquisitions would have a negligible impact on the quality of its balance sheet, or would potentially cost the bank more than it is worth. I wouldn't expect "growth through acquisition" to be in the bank's near-term plans.

2. Valuation
My colleague Matt Koppenheffer touched on this in his excellent video outlining his reasons to sell US Bancorp, and I couldn't agree more. Because of the relative "love" that US Bancorp gets from some investors, various metrics may be slightly out of whack for the bank, making it relatively more "expensive" when compared to some other banks:

Bank	P/B Ratio	Price/Tangible Book Ratio	P/E Ratio	Yield
US Bancorp	1.97	2.62	11.53	2.4%
PNC Financial (NYSE: PNC  )	0.86	1.27	11.23	2.9%
Goldman Sachs (NYSE: GS  )	0.86	0.71	11.43	1.7%
BB&T Corp (NYSE: BBT  )	1.13	1.70	11.11	2.8%
Capital One Financial (NYSE: COF  )	0.90	1.27	9.68	0.3%

Source: Finviz.com and Zecco.com.

This is but a small subsection of the financial sector, but it paints an interesting picture. US Bancorp lags in most of the categories, though it is squarely in the middle of the road when it comes to its dividend yield. From a pure valuation standpoint, US Bancorp's best days might be behind it, and there are other values to be had in the sector.

3. It's a bank
Finally, while I personally think there is a lot of value to be found in the banking sector, the market as a whole still seems to be skeptical of big bank stocks like US Bancorp. It seems that every other day, there is some news about some big bank losing in court or paying a settlement because of mortgage shenanigans or various other reasons.

Furthermore, there is no industry under more scrutiny than the banking sector because of the financial meltdown they helped cause in 2008. The largest banks are required to pass certain "stress tests" every year, testing the banks' ability to handle various economic scenarios, including a massive drop in home prices, high unemployment, and substantial banking losses. Hopefully, US Bancorp can follow up its stellar performance in the next round of tests early next year, but only time will tell.

Don't take my word for it
While I like to think that I have the power to move markets, I'm no Warren Buffett. It goes without saying that these three reasons should not be the only reasons that you sell -- or avoid -- US Bancorp as an investment. I do hope they are a good starting point as you dig deeper into your research on the company.

To go beyond my bearish musings and find out�whether US Bancorp is a buy today, I invite you to read our premium research report on the bank today.�Click here now�for instant access.

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