NEW YORK (TheStreet) -- Higher interest rates would make banks, including regional banks, and their stocks more attractive. The benchmark KBW Bank Index (I:BKX) is down 4%, trailing 2% gains of the S&P 500 (SPX) as a whole, so there's still value in banking.
Consider PNC Financial (PNC) - Get Report, the eighth-largest bank in the U.S. by total assets. At around $93.50 per share, PNC stock is up 2.5% so far in 2015. Like regional banksSunTrust (STI) - Get Report and Comerica (CMA) - Get Report, Pittsburgh-based PNC is looking to offset the current low interest rates to stabilize revenue and profit.
PNC, which reports first-quarter earnings Wednesday, is focusing on increasing the number of new depositors, building up its commercial loans, cutting costs and improving its mobile banking. That creates value not only for shareholders but for customers. Attention to customers' needs has been something that has long set PNC apart from the pack, and its recent results show this strategy is paying off.
In its fourth quarter, PNC reported a 3% sequential jump in its deposits to $5.9 billion, helped by higher demand and money market deposits. In other parts of the business such as commercial loans, PNC reported almost a 10% year-over-year jump, reaching almost $130 billion. This was buoyed by a near 5% increase in total loans. All of this led to fourth-quarter revenue and profits that beat Wall Street expectations.
So investors looking for a relative outperformer in banking that pays a dividend yield of 2.20% and is buying back its stock should consider taking a position in PNC, especially as analysts have raised profit estimates for the just-ended quarter.
For the quarter the ended March, the bank is projected to earn $1.72 per share. That's up 2 cents from prior estimates of $1.70 at the start of the quarter. Revenue is projected to be $3.75 billion, marking almost of 1% decline from last year's first-quarter revenue of $3.78 billion. Again, this is where low interest rates have had an impact.
Still, for the full year, ending in December, projected revenue of $15.42 billion suggest a modest increase of 0.30%. While projected full-year earnings of $7.24 per share would translate to a year-over-year decline of almost 1%, full-year 2016 estimates of $7.90 per share suggest 10% earnings growth above 2015. And that's what makes PNC a good investment today.
Based on forward estimates, the stock is valued at just 11 times 2016 projections. That's a six-point discount to the rest of the S&P 500, which trades at a forward P/E of 17. And considering its average analyst 12-month price target of $97, suggesting more than 4% gains, there is still decent value in these shares.
Assuming PNC is able to reach its high analyst target of $105, investors buying these shares today would own a cheap stock that could net gains of around 13% while also collecting that 2.20% yield, which 0.20% higher than the average dividend-payer in the S&P 500.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.