Should I sell U.S. Bancorp shares after UBS lowered its rating?

U.S. Bancorp (NYSE: USB) shares have weakened approximately 8% since the beginning of the 2022 year, and the current price stands at $52.26.

UBS lowered its rating on U.S. Bancorp

U.S. Bancorp is an American bank holding company that provides banking, investment, mortgage, trust, and payment services products.

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U.S. Bancorp continues to respond to the needs of its clients in the best possible way, and it has a well-diversified business profile with a large part of revenues coming from commissions and fees.

In an effort to modernize its infrastructure,  U.S. Bancorp has partnered with Microsoft, which became a primary cloud provider for the bank’s applications.

This partnership will enable new opportunities in the increasingly digital world and further improve data security, financial assets, and customer privacy. Microsoft Chairman and CEO Satya Nadella said:

As U.S. Bank’s primary cloud provider, we will apply the power of Azure to help the company adapt and build new, secure experiences for customers and employees in the era ahead.

Last month, the board of directors declared a $0.46/quarterly share dividend, which will be payable on April 15 to stockholders of record as of March 31, 2022.

Despite this, UBS lowered its rating on U.S. Bancorp and warned that the Federal Reserve’s aggressive plan for tighter monetary policy is not necessarily a positive for U.S. Bancorp. The U.S. Federal Reserve switched to a more hawkish tone, and Fed Chair Jerome Powell said interest rates could rise quicker.

Federal Reserve Chair Jerome Powell also warned that the Russia-Ukraine conflict poses a risk to inflation, and the FED could move more aggressively if inflation remains high.

According to UBS, 15% of U.S. Bancorp deposits are custody, which can be quite sensitive to rising rates. UBS lowered its price target on U.S. Bancorp to $56 from $64, but this still implies a 7% upside compared with the current share price.

Fundamentally looking,  U.S. Bancorp is a stable bank, and with a market capitalization of $78 billion, shares of this bank are reasonably valued.

The current dividend yield is around 3.5%, and shares of U.S. Bancorp remain attractive for long-term-oriented investors. Essential information for potential investors is the fact that Berkshire Hathaway has U.S. Bancorp shares in its portfolio.

Technical analysis

The important support level stands at $50, while $56 represents the first resistance level. If the price falls below $50, it would be a firm “sell” signal, and we have the open way to $47 or even below.

On the other hand, if the price jumps above $56, the next target could be $58.

Summary

U.S. Bancorp is a stable bank, but according to UBS, the Federal Reserve’s aggressive plan for tighter monetary policy is not necessarily a positive for U.S. Bancorp. UBS lowered its price target on U.S. Bancorp to $56 from $64, but this still implies a 7% upside compared with the current share price.

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