The Razor’s Edge

2-Year Price History

Ockham’s Rating

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USB Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at USB through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 1.73x and 1.19x respectively.

Utilizing this range we can see that USB’s current Price to Sales per share ratio of 1.51x is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about USB we would need to see a drop in the Price to Sales ratio of 3% given current sales per share levels in order to return to its historical weighted average.

USB Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of USB, Ockham views their current Cash Earnings as significantly below their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for USB, the current level of Cash Earnings compared to its historical levels helps identify where USB is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 7.14 and a historical low Cash Earnings per share ratio of 4.92, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for USB? From the Ockham perspective, we are looking specifically at USB to see if the market is recognizing the huge disparity between USB’s past stock price to Cash Earnings ratio to today’s levels. At a difference of 18% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at USB. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

USB Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don’t require dividend payments for company’s whose management has elected to forgo them entirely.

When reviewing dividend yields for USB, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management’s confidence in the company. USB’s estimated annual dividend is $1.70 resulting in a current dividend yield of 11.88%. The highest dividend yield from USB over recent history was 17.51% while the lowest dividend yield was 2.33%. If you are looking for some “bang for your buck” then a dividend yield of 19.76% above the historical median should be enticing. USB receives a positive boost in our view because as you know, equity at its core is simply a claim on future dividends.