Banking Trio for "Prudent" Investors

08/08/2016 7:00 am EST


Chris Quigley

Contributing Editor, The Prudent Speculator

The Prudent Speculator recommends that long-term investors maintain a widely diversified portfolio focused on quality and value. Here, co-editors Jason Clark and Chris Quigley offer updates three of their banking sector recommendations.

Shares of JPMorgan Chase (JPM) rose following a Q2 financial report that showed that the financial behemoth beat expectations, reporting adjusted EPS of $1.50, versus consensus estimates of $1.43.

We continue to like that high-quality JPM shares are trading at less than 11 times next-twelve-month earnings estimates.

We also believe the firm’s diversification, strong positioning in numerous areas, fortress balance sheet and adept leadership make JPM shares a core financial holding.

JPM currently carries a dividend yield of 3% and our Target Price has been bumped up to $80. 

PNC Financial (PNC) reported Q2 earnings per share of $1.85, versus consensus estimates calling for $1.75.

Despite topping investor expectations, the regional bank was negatively impacted by the continuation of the low rate environment, saying it now sees 2016 revenue in line with 2015, compared to the modest growth that management had been projecting.

PNC and other banks will continue to feel the operating headwinds of a lower interest rate environment for some time to come. Even if the Fed should decide to raise rates in the near future, we don't expect a rapid increase.

Still, considering the company’s capital position, low-cost deposit base and improving asset quality, we believe the recent share price slump offers an attractive entry point.

PNC shares carry a current dividend yield of 2.7% and a P/E of 11.7. Our Target Price has been nudged higher to $113.

Shares of Wells Fargo (WFC) dropped after the domestic banking giant reported Q2 EPS of $1.01, which was in line with investor expectations.

Low interest rates continued to impact results as the company’s return on equity dropped to a multi-year low of 11.7%. That said, WFC’s ROE figure was still better than its big bank peers that also reported.

We continue to like the strong position in loans, improving credit quality of its loan portfolio, solid capital ratios and liquidity, not to mention the growth of business segments like its wealth management arm.

WFC shares currently trade at 11.7 times forward earnings estimates. WFC currently yields a solid 3.2%, but we have trimmed our Target Price to $62.

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By Jason Clark, Co-Editor of The Prudent Speculator

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