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Pro Analysis

Cheap PNC Bank shares set to return 11%: KBW

PNC Bank branch
Andrew Harrer | Bloomberg | Getty Images
PNC Bank branch

Shares of PNC Financial Services Group, off nearly 7 percent this year through Tuesday, are too cheap considering it's a best-in-class regional bank with diversified businesses that can withstand interest rate risk, according to Keefe, Bruyette & Woods, which upgraded the stock to outperform from market perform.

Brian Klock, an analyst with the investment bank specializing in financial services, wrote in a note late Tuesday:

"We believe PNC is a highly profitable, well-run bank that has levers to grow earnings. With shares currently trading at what we think is an attractive valuation and with the opportunity for multiple expansion, we are upgrading the shares to outperform. ... We believe the shares warrant a premium price-to-earnings multiple versus peers due to the bank's diversified revenue stream, growth in higher-multiple earnings from the core PNC bank and contribution from its stake in BlackRock Inc., efficient operations with more room on expenses, and stored earnings power in high level of excess cash."

The shares had been weighed down earlier in the year as interest rates remained stubbornly low, squashing the profit margin outlook for regional banks. Recent comments by Federal Reserve officials about raising rates as many as two times this year have sparked a turnaround in bank shares.