PNC Leads Banks After Manufacturing Activity Improves

NEW YORK (TheStreet) -- PNC Financial Services Group (PNC) of Pittsburgh led bank stocks higher on Monday, with shares rising 0.7% to close at $77.41.

The broad indices ended lower, as early results for Black Friday and Cyber Monday shopping indicated increased volume but lower spending from a year earlier.  Retail winners included Gap (GPS), which was up 1.5% to $41.58.   eBay (EBAY) was strong, with shares rising 1.6% to $51.35, while Groupon (GRPN) saw its shares slide 3.3% to close at $8.75, after Goldman Sachs cut its rating to "neutral" from "buy."

The KBW Bank Index (I:BKX) faded late to end with a decline of 0.2, closing at 67.65, after the Institute for Supply Management (ISM) said its manufacturing purchasing managers index (PMI) for November increased to 57.3% from 56.4% in October.  The PMI has increased each month since June, and the November reading was the highest during 2013.  A reading above 50% indicates expansion.  ISM said that 15 of 18 industries reported growth during November.

Despite a 32% increase for the KBW Bank Index this year -- outperforming the S&P 500 , which is up 26% -- KBW analyst Frederick Cannon still sees value in stocks of big bank stocks, since "forward earnings estimates for financials have risen during the year while they have fallen for the overall market."

In a note to clients on Sunday, Cannon wrote that valuations for financial stocks have a "compelling relative relative price-to-book valuation compared to the S&P. This suggests that there is little reason to expect relative underperformance of financial stocks in the year ahead and that select financial stocks continue to have compelling valuations, at least on a relative basis."

PNC

PNC's shares have returned 36% this year, following a return of 4% in 2012, assuming the reinvestment of dividends.  Based on a 44-cent quarterly payout, the shares have a dividend yield of 2.27%.  The shares trade for 1.5 times tangible book, according to Thomson Reuters Bank Insight, and for 11.1 times the consensus 2014 earnings estimate of $6.95 a share.  The consensus 2015 EPS estimate is $7.45.

Jefferies analyst Ken Usdin rates PNC a "buy," with a price target of $84.00, based on a multiple of 12.5 to his 2014 EPS estimate of $7.15.  After meetings with PNC management, the analyst in a note on Nov. 21 wrote "we continue to like progress on several fronts: 1) loan growth share gains, 2) fee oppt'y set; 3) underlying cost control; 4) capital return positioning."


PNC ChartPNC data by YCharts

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-- Written by Philip van Doorn in Jupiter, Fla.

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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

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