Investing.com -- Wolfe Research upgraded U.S. Bancorp (BVMF:USBC34) to "Outperform," citing a attractive valuation and expected improvements in operating performance.

USB has been the worst-performing stock in Wolfe’s Mid-Cap Banks coverage this year, but the firm sees value in the pullback. Wolfe is encouraged by new CEO Gunjan Kedia’s urgency to improve results.

The firm expects USB to benefit from rising net interest income as fixed-rate loans and securities reprice at higher spreads. It projects USB’s net interest margin to expand by about 15 basis points through 2026.

U.S. Bancorp shares have been trading down 10% so far this year, underperforming S&P 500, which is down roughly 4% year to date.

Wolfe also sees USB reaching better efficiency levels by reducing expense growth to historical averages. This could lead to about 230 basis points of positive operating leverage.

Credit metrics are improving, with limited exposure to high-risk asset classes. Lower delinquency rates and higher reserve coverage provide further support.

Wolfe expects USB to resume share buybacks in 2026, returning about $2.6 billion to shareholders. The bank's capital levels should support its target payout ratio of 30-40%.

At its current valuation, Wolfe views USB as attractive compared to peers. The firm raised its 2025 and 2026 earnings estimates and set a year-end 2025 price target of $49, implying a 14% upside.

“While USB is the biggest YTD underperformer in our Mid-Cap Banks coverage, we see compelling value and are encouraged by new CEO Gunjan Kedia's sense of urgency to improve operating performance,” analyst at Wolfe said.

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