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Banking Essentials Newsletter: 23rd August edition


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J.P. MorganSecurities analyst Richard Shane upgraded his rating of Capital One Financial Corp. to "overweight" from"neutral," also increasing his price target for the company's stock to$83 from $73. EPS estimates for the company were $7.91 for 2016 and $8.70 for 2017.

The analystbelieves that McLean, Va.-based Capital One is the biggest beneficiary of the currentenvironment that favors the "lend-centric" card issuers, which is in turncaused by low credit losses. In addition, the increased rewards spend has resultedin increased transaction volume, market share gains and industry-leading asset growthfor the company, Shane wrote. The analyst also stated that Capital One has lowercredit sensitivity compared to the sensitivity implied by basic metrics due to thecompany's "best-in-class underwriting."

Evercore ISIanalyst John Pancari upgraded his rating of PNCFinancial Services Group Inc.'s stock to "buy" from "hold,"writing that while the company's stock trades in line with those of its fellow superregionals,it does so with less downside EPS risk and better visibility. The analyst addedthat the Pittsburgh-based company seems to be poised to see better credit performancedown the road, and is also well-positioned in terms of expense leverage as heavyinfrastructure investment over the past several years abates.

In his report,the analyst also stated that he sees future improvement in the company's EPS asaccretion headwinds subside, projecting 2016 and 2017 earnings growth to be 4.4%and 10.7%, respectively. He also noted that the company's conservative underwritingstandards could pave the way for PNC's credit metrics to outperform peers in comingquarters.

Pancari alsoincreased his price target for PNC's stock to $94 from $86. But he lowered his 2016earnings estimate to $7.36 per share from $7.44 per share and his 2017 earningsestimate to $8.15 per share from $8.39 per share. The revision in estimates tookinto account more conservative fee assumptions, slower loan growth and incrementallyhigher credit costs.


Pancari alsoissued a report on Cincinnati-based FifthThird Bancorp, downgrading the company's stock rating to "hold"from "buy," writing that despite the stock's discounted valuation, earningsheadwinds could serve as a hindrance to upside catalysts. He particularly pointedout the company's ongoing investments in risk/compliance and information technology,as well as increasing credit costs, could affect the company's earnings growth outlook.

The analystmodeled a 5% decline in net income in 2016 for the company, as well as a 62.9% efficiencyratio by the fourth quarter. Loan loss reserve was modeled at 1.36% while net charge-offswere modeled at 0.41%. Pancari also stated that he expects the company to experiencesluggishness in loan growth and pressure on its net interest margin.

Pancari cuthis price target for the company's stock to $18 from $20, and EPS estimates for2016 and 2017 were lowered to $1.51 from $1.64, and $1.79 from $1.98, respectively.

Coverage resumption

Analyst JoeGladue of Merion Capital Group resumed his coverage of New York-based , giving the company'sstock an "outperform" rating and a target price of $162. He also put EPSestimates at $8.08 and $9.41 for 2016 and 2017, respectively.

The analystnoted that the company has managed to compound annual growth rates in loans anddeposits in excess of 35% and 23%, respectively, over the last five years, whichwas achieved organically, largely through attracting established private clientbanking teams. He also pointed out that the company has a unique business modelthat emphasizes high-touch, relationship banking with a single point of contactfor its business and owner/senior manager clientele. The company's business modelalso allows the company to be a low-cost and efficient organization as it needslittle in the way of physical locations and has no middle management, Gladue wrote.