7. PNC Financial Services Group


Shares of PNC Financial Services Group ( PNC) of Pittsburgh closed at 57.46 Friday, returning 2% year-to-date, following a 3% decline during 2011.

The shares trade for 1.1 times tangible book value, and for 8.7 times the consensus 2013 EPS estimate of $6.59. The consensus 2014 EPS estimate is $6.93.

Based on a quarterly payout of 40 cents, the shares have a dividend yield of 2.78%.

Oppenheimer analyst Terry McEvoy on Nov. 26 reiterated his "Buy" rating for PNC, but lowered his price target to $72 from $75, "in light of the compression in bank stock valuations and the negative EPS revisions post 3Q12 earnings."

PNC reported third-quarter net income of $825 million, or $1.64 a share, increasing from $546 million, or 98 cents a share in the second quarter, and $834 million, or $1.55 a share, in the third quarter of 2011. The sequential earnings improvement reflected second-quarter items totaling $403 million after tax, or 76 cents a share, including "$284 million after tax, or $.54 per diluted common share, for a provision for residential mortgage loan repurchase obligations, noncash charges of $85 million after tax, or $.16 per diluted common share, related to redemption of trust preferred securities and integration costs of $34 million after tax, or $.06 per diluted common share."

During the third quarter, PNC's net interest margin -- the difference between the average yield on loans and securities investments and the average cost for deposits and borrowings - narrowed to 3.82% from 4.08% the previous quarter and 3.89% a year earlier. The company said the sequential margin decline included 16 basis points "due to lower purchase accounting accretion."

McEvoy said that "PNC provides guidance on potential levels of purchase accounting accretion and believes levels will decline $400M in FY13 to ~$650M. We understand that this revenue is not 'core' in nature but that it does flow into capital. Backing out purchase accounting accretion from our 2013E EPS would suggest 'core' earnings of ~$5.35."

The analyst is still positive on PNC, because the company's acquisition of RBC Bank (USA) in the first quarter "provides the right size retail platform in that it allows PNC to be a known banking entity without the expense drag of having a branch on every corner. PNC is ahead of the industry when it comes to transitioning customers into less expensive non-branch delivery channels."

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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