Shares of Fifth Third Bancorp ( FITB) are up 23% in 2012 but it still trades at a 10% discount to peers on 2013 earnings, according to O'Connor. This is despite the fact that the bank has consistently above average return on equity, above-average capital with its Basel 3 Tier One ratio at 9% versus 8% for peers, a higher dividend yield of 2.6% and a higher-quality earnings stream , the analyst notes. The Fed recently approved a 25% increase to its dividend after denying it earlier this year. It also received permission to buy back $ 600 million in stock, which was more than what analysts were expecting. The potential upside to 2013 earnings from the recently approved share buybacks has not been fully reflected in consensus, according to O'Connor. A stronger second half from better-than-expected mortgage performance could also serve as a catalyst. The analyst expects the bank to report an earnings per share of 38 cents in the third quarter in line with consensus. Fifth Third reports on Oct.18.
Goldman Sachs ( GS) appears to be once again the darling of bank analysts, with the stock getting several bullish recommendations in recent weeks. Shares of the investment bank heavyweight are up 30% year-to-date. "A few solid quarters in a row seem likely and could help GS shares re-rate higher", writes O'Connor. Goldman's third quarter topline should get a lift from higher fixed income trading revenues and a rebound in the performance of its investment and lending division thanks to higher market levels. Meanwhile in the fourth quarter, the bank is likely to benefit from compensation expense reversals, while the first quarter of 2013 will be seasonally strong.. O'Connor expects Goldman to report an earnings per share of $2.70 excuding a DVA hit of 60 cents. Including DVA, EPS is expected to be $2.10 versus $2.08 consensus. Goldman reports October 16.
Upgrading the stock to a buy from hold, O'Connor argues that PNC Financial ( PNC) is in the process of addressing most of the issues dogging the bank. Shares of PNC have underperformed in 2012 as earnings have been clouded by one-time items following its acquisition of the US. Operations of RBC Capital. The bank has however given more clarity about its "purchase accounting accretion" recently. The analyst also expects greater clarity on how the bank expects to achieve its Basel 3 target of 8 % to 8.5% in the third quarter. Also additional "one-timers" in the upcoming quarters have been well-telegraphed and results are likely to be cleaner in 2013, according to the analyst. Deutsche expects PNC Financial to report an earnings per share of $1.61 excluding RBC merger charges versus a consensus estimate of $1.60. PNC is set to report on Oct 16. -- Written by Shanthi Bharatwaj in New York.