U.S. Bancorp (USB)

Total return at 5 years: 9.5%/year = 5.7% appreciation + 3.8% dividend. The target price ($76) is ex-dividend; the $12 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $122 · Multiples $71) exceeds the market price ($57).

Today — fairly valued: at $57 trades ~19.5% below its value discounted to today (~$71); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($76) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$46.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($57) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-12.8%/year) than we project (3.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$3.8 bn of owner earnings in year 5 (vs ~$8.6 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

A bank is valued on equity (P/E × earnings to common + P/tangible book), not on EV. Rolling grid: the base year is the TTM (earnings to common $7.797bn = attributable net income $8.168bn − preferred dividends, Q2'26 release to 30-Jun-2026) and the projection is 12-month windows (+1y…+5y). It returns capital via dividends (~$2.08, +4%/year) + buybacks (which reduce the share count ~0.7%/year → EPS grows from ~$5.00 to ~$6.04 over five years). On the share count: over the past twelve months it stayed flat at 1,558M because the shares issued for the BTIG acquisition, closed in the second quarter, offset the buyback; the projected path resumes the reduction from that already-diluted base. Base case: earnings to common starting at +2.3%/year (the average of the trajectory, without extrapolating the peak) accelerating to +3.8% by year 5, exit P/E 12.5×.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $76 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $57, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $76 in 5 years plus $12 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $71. Against the current market price ($57), the margin of safety is 19.5% (trades below the maximum → there is margin) and the total return at that price would be 9.5% annually.

• Multiple vs quality. P/E 12×, within a bank's band (10-15×) and consistent with its ROTCE.
• P/tangible book vs the method's ceiling. 2× paid against the 2.5× ceiling the method sets for a bank — within the bar.
• Margin of safety. Base total return ~6%/year — in the average-return zone, without an ample margin of safety.

• ROTCE exceeds the 10% bar. ROTCE 18.1% vs the 10% bar → +8.1pp of value creation per dollar of tangible capital.
• Capital adequacy. CET1 10.8%, ~370bp above the regulatory minimum (7.1%) with buffers.
• Credit quality. Charge-offs 0.57% (benign), coverage 2.03% of the loan book, NPAs ~0.41%.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A bank's engine is volume × spread: deposits ($528.2bn TTM) fund the loan book ($391.3bn at FY2025 year-end, +1.7% average year-over-year) at the net interest margin (2.72% taxable-equivalent basis). Noninterest income —trust/investment management, capital markets, cards and merchant processing— grew more strongly (+7.6%) and complements the spread business.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. FY23's +15.8% was from the MUFG Union Bank consolidation (not extrapolable); the recent organic trajectory runs around +2-4%.
• Growth engine. Payment Services (+6-7%) offsets the contraction in Consumer Banking's commercial real estate book.
• Cyclicality. NII sensitive to rates; credit currently benign, due to normalize over the cycle.

• Relevant in 10 years (recurrence). Banking is essential and USB is an established, scaled player; it will still be used in 10 years.
• Pricing power. Limited: rates are set by the Fed. The power lies in the cost of funding (deposits) and niche fees, not in price-setting.
• Moat and its direction. Narrow and stable moat: deposits, scale, payments/corporate trust niches; Payment Services is in fact gaining traction.
• Capital cycle. Mature, regulated sector: capital does not enter easily (FHC/Category III barrier), but returns are cyclical (credit, rates).

• ✓Capital adequacy (CET1)CET1 10.8% (+3.7pp above the minimum)
• ✓Reserve coverage (allowance / loan book)1.94% of the loan book
• ✓Credit quality (net charge-off rate)0.53% annually
• ✓Value creation (ROTCE − 10% bar)+8pp
• ✓Funding (deposit base)Deposits $532 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Capital. CET1 +370bp above the minimum: ample cushion for shocks and to accelerate capital returns.
• Credit. Benign charge-offs, ample coverage; NPAs ~0.41% of the loan book.
• Funding. Deposits $528.2bn, loans/deposits ~74% — stable funding.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Reinvests at 18.1% ROTCE (well above the 10% bar) and returns the rest: dividend over the twelve months to Q1 2026 ~$3.2bn (payout ~43% of common earnings) + buyback over that window ~$0.6bn, accelerating sharply from $173M in FY2024 — the excess capital capacity (CET1 ~370bp above the minimum) sustains that acceleration without compromising solvency.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Professional management with no controlling shareholder; the detail of director/executive ownership was not captured in this extraction.
• Capital allocation. Reinvests at 18.1% ROTCE and returns the rest; the buyback accelerates sharply with excess capital.
• Integrity / track record. Internal succession completed (Kedia, April 2025) with no prolonged overlap; capital and ROTCE improved in the first year.

• There is no clear source of discount: The price already reflects a Q2'26 with reported EPS +22%.
• The multiple (P/E 12×, P/tangible book 2×) already recognizes USB's ROTCE: it leaves no discount.
• The P/E premium over comparable-balance-sheet peers is already paid — the margin of safety is limited, not generous.

With no identifiable missing-buyers or motivated-sellers → it is not particularly cheap; it is a quality bank trading in line with that quality, at a modest premium and without an ample margin.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +2%/year (+12% total): the margin of safety protects the downside. The bull (+14%/year, +91% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Credit cycle. In a recession charge-offs rise toward through-cycle levels — the central disconfirmer.
• CISO vacancy. Key cybersecurity role vacant since November 2025, temporarily covered.
• BTIG integration. Risk of unrealized synergies or costs above estimate (close 2Q-2026).
• Regulatory transition. If assets cross $700bn, it would move to Category II with stricter standards.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROTCE 18% above the 10% bar, but the margin is limited (+19%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 3% at a PEG of 3.8 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -13% vs our 3%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -2%/yr, bull-scenario ceiling +10%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -13%, within what we project (3%) — the story squares with the numbers.