There’s no way around it: PNC Financial Services Group Inc (NYSE:PNC) has suffered a rough first half of 2016. Between an earnings miss and a few analyst downgrades, shares are now sitting more than 11% lower than they were at the start of the year.
PNC stock isn’t alone in its struggles, though. Large banks across the board have suffered, thanks to low interest rates, fears about the global economy and earnings that seem to be going nowhere but sideways. In fact, the financial sector has been the worst-performing sector this year, and is only one of two sectors in the S&P 500 with losses on the books.
Any clues to an interest rate hike tend to send these stocks recovering and any signs of caution — like the ones we got from Janet Yellen just a couple of weeks ago — have the opposite effect.
Really, though, such seesawing is a distraction from the strong fundamentals of many leading banks.
PNC — one of the largest diversified financial services companies in the country — is no exception. Despite the recent underperformance and negative sentiment, I believe PNC bank is set to break out. Here are three reasons why:
Resilience: That strong foundation I mentioned is evident in how well PNC weathered far tougher times — such as the financial crisis. Impressively, PNC managed to remain profitable through the financial crisis with earnings of $2.46 a share in 2008 and $4.26 a share in 2009. The fact that PNC was able to keep its head on straight during such extreme circumstances suggests that it can and will weather the current headwinds as well.
And PNC didn’t just survive; it thrived once the market improved. In the years that followed the crisis, loan losses declined and non-interest income rose. In turn, earnings more than doubled to $7.39 a share in 2013.
Earnings Recovery: Since earnings doubled in 2013, they’ve more or less flattened. As I already mentioned, the low interest rate environment has pressured margins and caused EPS to flatten a bit, with PNC earning $7.30 in 2014 and $7.39 in 2015. Unfortunately, earnings are expected to dip slightly this year.
But that’s already baked into the PNC stock price and sentiment — in fact, it’s a little too baked in. An even more conservative earnings estimate of $7.05 for 2016 (10 cents lower than the consensus) leaves PNC stock at a multiple of 12 — quite an attractive value opportunity right now.
Plus, the downtrend is just a blip on the radar, meaning you should get in before EPS results start rising again, as they’re slated to do in 2017. You can trust the estimated rise in earnings for next year too; while earnings missed expectations in the most recent quarter, they were better-than-expected the three quarters prior.
Dedication to Shareholders. The cherry on top for PNC stock? Management’s commitment to shareholders.
For starters, the stock offers a nice 2.4% dividend yield. On top of that, PNC also has an impressive share buyback program, which has already lowered the outstanding share count by more than 4% over the last year. Management can see that its stock is a good deal right now and is buying it back to reward loyal shareholders.
I especially like that PNC has managed to maintain a strong balance sheet even while returning capital to shareholders. The company has a common equity ratio of nearly 11%, which is much higher than the 6% ratio required for a bank to be considered well-capitalized.
Add it up, and there’s a lot to like about PNC stock. While shares have been beaten around a bit thanks to sector-wide uncertainty, that spells opportunity for investors who can recognize PNC’s resilience and coming uptrend.
PNC stock is a great deal at these levels — don’t wait until it’s too late.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
