Financial services holding company U.S. Bancorp (USB) provides various financial services in the United States. It operates in Corporate and Commercial Banking; Consumer and Business Banking; Wealth Management and Investment Services; Payment Services; and Treasury and Corporate Support segments. On the other hand, established financial services company JPMorgan Chase & Co. (JPM) operates in four segments: Consumer & Community Banking; Corporate & Investment Bank; Commercial Banking; and Asset & Wealth Management.

Even though the near-zero interest-rate environment remains unchanged amid concerns over the pace of economic recovery, most banking stocks have rebounded this year, with rising financial transactions and capital market activities driving the non-interest component of their revenues. Moreover, the Federal Reserve said it could soon slow its large-scale purchases of government-backed bonds and indicated it might raise interest rates in 2022, which should help financial companies increase their interest income. According to Globe Newswire, the global financial services market is expected to grow at a CAGR of 9.9% and hit $22.5 trillion this year. As a result, both USB and JPM should benefit.

USB has gained 15% over the past nine months, while JPM has returned 10%. However, JPM’s 32.7% gain over the past year is higher than USB’s 28.7% return. Moreover, JPM is the clear winner with 27.4% gain versus USB’s 23.4% return in terms of year-to-date performance.

But which of these two stocks is a better buy now? Let’s find out.

Latest Developments

USB has agreed to acquire TravelBank, a San Francisco-based fintech company that provides an all-in-one, tech-driven expense, and travel management solution. Shailesh Kotwal, vice-chair of Payment Services at U.S. Bank, said, “This acquisition will allow us to significantly expand our client base and deliver even more value to our customers."

On September 21, 2021, JPM declared a quarterly dividend of $1 per share on the outstanding shares of the common stock of the company, an increase from the prior quarterly dividend of $0.90 per share. The dividend is payable on October 31, 2021, to stockholders of record at the close of business on October 6, 2021.

Recent Financial Results

USB’s net revenue decreased 1.2% year-over-year to $5.89 billion for the fiscal third quarter that ended September 30, 2021. However, its net income grew 28.4% year-over-year to $2.03 billion, while its EPS came in at $1.30, up 31.3% year-over-year.

JPM’s net revenue increased 2% year-over-year to $30.44 billion for the third quarter ended September 30, 2021. The company’s net income grew 24% year-over-year to $11.69 billion. Also, its EPS came in at $3.74, up 16% year-over-year.

Past and Expected Financial Performance

USB’s revenue and EPS grew at CAGRs of 4.4% and 7.6%, respectively, over the past three years. Analysts expect USB’s revenue to increase 4.9% for the quarter ending March 31, 2022, and 10.6% in fiscal 2022. The company’s EPS is expected to grow 16.8% for the quarter ending December 31, 2021, and 68.3% in fiscal 2021. Moreover, its EPS is expected to grow at a rate of 13.1% per annum over the next five years.

On the other hand, JPM’s revenue and EPS grew at CAGRs of 8.5% and 25.2%, respectively, over the past three years. The company’s revenue is expected to increase 0.6% for the quarter ending March 31, 2022, but decrease 0.1% in fiscal 2022. Its EPS is expected to decline 22.2% for the quarter ending December 31, 2021, but grow 68.6% in fiscal 2021. Also, JPM’s EPS is expected to grow at a rate of 10.7% per annum over the next five years.

Profitability

JPM’s trailing-12-month revenue is 5.61 times what USB generates. Moreover, JPM is more profitable with a net income margin of 38.17% compared to USB’s 33.38%.

Furthermore, JPM’s ROE and ROA of 17.85% and 1.43% are higher than USB’s 14.56% and 1.41%, respectively.

Valuation

In terms of forward non-GAAP PEG, USB is currently trading at 1.12x, 60% higher than JPM’s 0.70x. Moreover, USB’s forward non-GAAP P/E ratio of 11.20x is higher than JPM’s 10.85x.

So, JPM is the more affordable stock.

POWR Ratings

USB has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. On the other hand, JPM has an overall grade of C, which translates to Neutral rating. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

USB has a grade of C for Growth, consistent with analysts’ expectations that its revenue and EPS will increase significantly in the upcoming months. On the other hand, JPM has a Growth grade of D, consistent with analysts’ expectations that its revenue and EPS will decrease in the near term.

Of the 12 stocks in the Money Center Banks industry, USB is ranked #2, while JPM is ranked #4. Beyond what I’ve stated above, we have also rated the stocks for Sentiment, Stability, Momentum, Quality, and Value. Click here to view all the USB ratings. Also, get all the JPM ratings here.

The Winner

With increasing financial transactions, the banking industry is expected to continue witnessing rising revenues. While both USB and JPM are expected to gain in the long run, it is better to bet on USB now because of its significantly higher growth estimates.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Money Center Banks industry here.

JPM shares rose $0.08 (+0.05%) in after-hours trading Monday. Year-to-date, JPM has gained 30.07%, versus a 25.48% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

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