Banking Bets from a Leading Value Manager

09/11/2019 5:00 am EST

Focus: FINANCIALS

John Buckingham

Editor, The Prudent Speculator

We think stocks are extraordinarily attractive today as investor sentiment is quite bearish, corporate balance sheets and income statements are in good shape, valuations are more reasonable and a 1.5% 10-year Treasury yield is no match for the current 2% yield of the S&P 500, notes John Buckingham, a value-oriented money manager and editor of The Prudent Speculator.

Created in 1983 via the merger of Pittsburgh National and Provident National, PNC Financial Services (PNC) has grown to become one of the largest U.S. banks.

Despite the historically low rest rate environment and stiff competition for deposits, PNC has found ways to continue to show respectable loan and deposit growth with strong overall credit quality.

We think the firm’s focus on organic loan growth is an important performance driver and we remain pleased with PNC’s ability to control overall costs and drive fee income. We support management’s continued effort to expand into new markets, and we think the asset management business will add to the bottom line.

Additionally, we note that PNC owns 22% of Blackrock (BLK), the largest asset management firm in the world. PNC Financial Services currently trades for 11.2 times next 12-months earnings and yields 3.6%.

Synchrony Financial (SYF) provides a range of credit products through programs established with local, regional and national retailers, manufacturers, industry associations and healthcare providers.

The company’s success has been driven by its private-label credit business as SYF performs the underwriting for the partners and retains the receivables while paying out rewards to retailers.

Although shares have rebounded more than 35% this year, the stock trades at just 7.3 times next 12-months adjusted EPS projections. Despite pressure on net interest margin, the Retail Card segment realized solid results in Q2, which were driven by the company’s PayPal Credit program acquisition.

Synchrony Financial is on track to complete the Walmart portfolio sale to Capital One in October, which will free up more capital, further supporting a buyback authorization of up to $4 billion from Q3 2019 thru Q2 2020. The shares yield 2.7%.

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