What Being 'Fed-Sensitive' Means For PNC In This Market

• PNC Financial Services Group Inc PNC shares lost 11 percent in the past month, after hitting a peak of $99.86 on August 10.
• Keefe, Bruyette & Wood’s Christopher Mutascio upgraded the rating for the company from Underperform to Market Perform, while establishing a price target of $101.
• Following the recent decline in the company’s shares, Mutascio believes that the valuation already reflects downside risk to the consensus EPS estimates.

PNC’s shares have plunged nearly 13 percent in the last three weeks. Analyst Christopher Mutascio believes that the shares now have a “much more reasonable valuation.”

Mutascio said that risk of the company missing expectations still remained, and maintained the EPS estimates for 2015 and 2016 3-4 percent below the consensus estimates.

Noting that PNC is “very asset-sensitive,” the analyst commented that the absence of a rate hike by the Fed could have “a more materially negative impact” on the company’s earnings than other firms that were less asset-sensitive. This is especially the case in view of the fact that the company “is still benefiting from $400 million in annual accretable yield that will wane over time.”

In the report Keefe, Bruyette & Wood noted that loan growth is decelerating, “with end-of-period loans essentially flat over the past 6 months” and a downturn in average loan growth from 1.5 percent in 4Q14 to merely 0.1 percent in 2Q15.

“While these risks have not changed since our downgrade to Underperform just three weeks ago, we believe the recent correction in the share price more appropriately accounts for such risks. As such, we are upgrading the shares to Market Perform,” Mutascio added.