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5 Regional Banks to Watch Heading Into Earnings (Update 2)

PNC Financial Services Group

Shares of PNC Financial Services Group (PNC) of Pittsburgh closed at $66.50 Thursday, returning 15% in the first quarter, following a 4% return during 2012. The shares trade for 1.3 times tangible book value and for 9.7 times the consensus 2014 EPS estimate of $6.83. The consensus 2013 EPS estimate is $6.53.

Based on a quarterly payout of 40 cents, the shares have a dividend yield of 2.41%. PNC on March 14 said its board of directors would "consider an increase" in the dividend at the next board meeting on April 4.

PNC will announce its first-quarter results on April 17. The consensus among analysts is for the company to report a profit of $1.56 a share, declining from $1.71 the previous quarter, but increasing from $1.44 a year earlier.

Oppenheimer analyst Terry McEvoy rates PNC "outperform," with a 12-to-18 month price target of $72, saying on March 14 the stress test results confirmed the company was "not too big, and not too small."

PNC's $3.6 billion acquisition of RBC Bank (USA) in March 2012 included $18.1 billion in deposits, $14.5 billion in loans and 424 branches in North Carolina, Florida, Alabama, Georgia, Virginia and South Carolina. When upgrading PNC to his current rating in September, McEvoy said the purchase of the RBC branches and the acquisition of the troubled National City Corp. in 2008, "were more than just financial engineering but also strategic moves that allowed PNC to enter new markets with a better product mix and sales culture."

McEvoy estimates that PNC will post first-quarter EPS of $1.62.

"We believe the valuation gap between other high-quality banks (i.e., USB and BBT) and PNC will narrow, especially as the market begins to appreciate the merits behind the RBC bank deal," he wrote.

Deutsche Bank analyst Matt O'Connor on Tuesday reiterated his "buy" rating for PNC and raised his price target for the shares to $74 from $71, saying in a report that "the stock now trades in line with peers and at a modest discount when we factor in the 22% ownership of BlackRock (BLK)."

PNC's new management team "seems increasingly focused on cutting costs-- which we believe will result in lower than expected expenses in 2013 and flattish expenses in 2014/2015 (both likely better than expected)," O'Connor wrote.

Deutsche Bank's 2014 EPS estimate of $7.00 and 2015 EPS estimate of $7.45 for PNC are well above the consensus estimates, "with an upward bias," according to O'Connor. The analyst added that PNC's estimate of roughly $10 billion in operating expenses for 2013 (declining from $10.582 billion in 2012), leaves "more room for improvement."

PNC Chart PNC data by YCharts

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