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5 Long-Term Bank Stock Picks From Jefferies (Update 1)

5. PNC Financial Services Group
Shares of PNC Financial Services Group (PNC) of Pittsburgh closed at $64.49 Friday, returning 12% during the first quarter, following a 3% decline during 2011.

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The shares trade for 9.5 times the consensus 2013 earnings estimate of $6.81 a share, among analysts polled by Thomson Reuters.

PNC on March 13 announced that the Federal Reserve had "accepted its capital plan and did not object to the capital actions, which included recommendations to increase the quarterly common stock dividend in the second quarter of 2012 and a modest share repurchase program under PNC's existing common stock repurchase authorization."

Credit Suisse analyst Moshe Orenbuch said on Monday that PNC plans to repurchase 25 million shares, and that he expects "the company to carefully manage capital ahead of Basel III implementation given the recent deal, potential [risk-weighted assets] inflation associated with its sub-investment grade securities portfolio ($6bn) and potential capital deductions associated with its BlackRock (BLK) stake."

Among the largest U.S. banks, Orenbuch expects PNC to achieve full Basel III compliance --- with a Tier one common equity ratio of 7.75%, including a 0.75% buffer as a "systemically important financial institution" -- rather late, in mid-2014. The analyst added that "that the company has options with respect to getting to the minimums faster (selling securities) if it chose to do so."

Orenbuch estimates that PNC's Basel III Tier 1 common equity ratio would be 6.5% at the end of this year, rising to 7.4% at the end of 2013.

PNC is currently paying a quarterly dividend of 35 cents a share, for a dividend yield of 2.17%.

Jefferies analyst Ken Usdin on Monday raised his price target for the shares to $70 from $66, while lowering his 2012 EPS estimate to $5.85 from $6.05, and raising his 2013 estimate to $6.45 from $6.35.

PNC will report its first-quarter results on April 18, and is expected by analysts to post earnings of $1.41 a share, increasing from 85 cents the previous quarter, but declining from $1.57 a share during the first quarter of 2011.

Last quarter, PNC's earnings of $493 million reflected "$240 million of residential mortgage foreclosure-related expenses primarily as a result of ongoing governmental matters, a noncash charge of $198 million related to redemption of trust preferred securities, and an increase in personnel expense of $103 million primarily driven by higher stock market prices and higher business production."

Usdin expects the company to post first-quarter EPS of $1.30, and said on Monday that he likes "PNC into the quarter given underperformance year-to-date, a likely dividend hike/buyback announcement following the early-April Board meeting, and achievable fullyear guidance" with the company estimating 2012 revenue growth ranging between 5% and 8%.

The analyst expects that the company's recent acquisition of RBC Bank (USA) will "likely cause some accounting confusion," but also believes "underlying trends should be strong enough to push the stock higher." Usdin includes 23 cents of merger-related expenses in his first-quarter EPS estimate of $1.30.

Interested in more on PNC Financial Services Group? See TheStreet Ratings' report card for this stock.
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