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3 Reasons to Buy Stock in PNC Right Now

By John Grgurich - Apr 24, 2013 at 3:09PM

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Superior earnings, superior leadership, and superior year-to-date stock performance.

As bank investors, it's easy to get focused on the big banks. They make a lot of noise and are regularly in the news: more than occasionally for the wrong reasons. But we focus on the giants and ignore the regionals at our own investing peril.

The best regional banks can take serious financial power and investment finesse and turn it into share-price appreciation without the annoying drama and potentially dangerous hubris of the too-big-to-fail institutions. PNC Financial (PNC 0.80%) is one of these low-drama, high-power banks. Here are three reasons to buy stock in this Pittsburgh-based powerhouse right now.

1. Big-bank beating first-quarter earnings
For the first quarter of 2013, PNC reported net income of $1.0 billion. For the first quarter of 2012, PNC's net income was $811 million. That makes for an increase of 23.3%. Wells Fargo (WFC -0.79%) came close to but couldn't quite match PNC's performance, with net-income growth of 22% year over year.  

Total revenue was also up year over year for PNC, by a healthy 6%: this at a time when banks are struggling to increase revenue, and net-income gains are driven by cost-cutting. This matters because you can only cut costs so far. At some point, more revenue has to come in to keep real, sustainable profit coming in.

For the first quarter, Wells' revenue decreased by 1.4%. JPMorgan Chase (JPM -0.82%) saw revenue decrease by 3.87%. Alternately, Bank of America (BAC -1.71%) saw its total revenue increase by 5% year over year. Kudos to B of A on pulling off what two of its biggest peers couldn't, though it still didn't match PNC's revenue performance.

2. A new CEO other banks should envy
If you read Fool's Gold, the brilliant book on the financial crisis by Financial Times writer Gillian Tett, you know who William "Bill" Demchak is: a wunderkind who literally helped invent the credit-derivatives industry at J.P. Morgan when the investment bank was still its own storied (and properly punctuated) entity and hadn't yet merged with Chase Bank.

Demchak officially replaced the long-serving Jim Ruhr as CEO of PNC yesterday Demchak came on as CFO in 2002, after 16 years on Wall Street, where he was known at J.P. Morgan as "The Prince of Darkness" for his role in helping to dream up the credit-derivatives industry. 

But before you hold that against him, know that Demchak and his colleagues initially saw credit derivatives as a way to spread systemic credit risk. And it was Demchak and his peers' conservative approach to credit-derivatives that helped keep J.P. Morgan, and then JPMorgan Chase, out of the worst excesses of the housing boom.

Leadership still counts. CEOs set the tone. I wouldn't be stockholder in JPMorgan or Goldman Sachs if it weren't for Jamie Dimon and Lloyd Blankfein, their respective CEOs.

Like Dimon and Blankfein, Demchak is smart, down to Earth, and has been instrumental in turning the backwater PNC into the regional powerhouse it is today. Demchak is also a Pittsburgher by birth, where PNC is based. The city, and the bank, are lucky to have him back around.

3. Brilliant year-to-date stock performance
So many banks did so well in 2012, you'd think it's a given that every bank blew it out last year. PNC didn't. In fact, PNC lost ground in 2012, giving shareholders a net loss of 1.22% for the calendar year. 

So it's entirely fitting that this well-bred, well-run, well-managed managed bank has returned a big 12.88% year to date. This blows B of A out of the water, which has only returned 0.33% so far. JPMorgan has only returned 7.86% to its shareholders year to date, while Wells Fargo returned even less: 5.93%.

Size isn't everything, and this is shaping up to be PNC's big year.

Foolish bottom line
Superior earnings, superior leadership, and superior year-to-date stock performance are three big reasons to consider giving this regional bank a place in your portfolio. 

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Stocks Mentioned

The PNC Financial Services Group, Inc. Stock Quote
The PNC Financial Services Group, Inc.
$155.98 (0.80%) $1.23
Bank of America Corporation Stock Quote
Bank of America Corporation
$33.86 (-1.71%) $0.59
JPMorgan Chase & Co. Stock Quote
JPMorgan Chase & Co.
$117.34 (-0.82%) $0.97
Wells Fargo & Company Stock Quote
Wells Fargo & Company
$41.67 (-0.79%) $0.33

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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