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Financial Stocks Pioneer Investments Would Recommend

February 16, 2012 | About:
Mara Kohn

Mara Kohn

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Pioneer Investments is a global investment manager dedicated to growing and preserving client assets. It was founded in 1928 and it aims at meeting client's needs. They deliver quality products and solutions to meet the clients' investment requirements. The firm provides a diverse range of products in traditional and non traditional asset classes through its centers located in Boston, Dublin and London.

Pioneer Investment is present in 27 countries across the globe and operates through experienced employees and investment professionals. At the end of 2011, managed assets amounted to €162 billion.

Here are some of Pioneer's financial stocks:

PNC Financial Services Group Inc. (PNC): PNC is a diversified financial services company in the United States. PNC provides services in retail banking, corporate and institutional banking, asset management, and residential mortgage banking in Pennsylvania, Ohio, New Jersey, Michigan, Maryland, Illinois, Indiana, Kentucky, Florida, Virginia, Missouri, Delaware, Washington, D.C., and Wisconsin. In December 2011, the Group purchased Georgia Retail Bank Franchise.

Pioneer Investments decided to invest in PNC because the company is considered a cheap stock; even cheaper than Fifth Third. Let´s look at some differences between the two companies and see why it is an interesting pick. While Fifth Third trades at 11.7x and 9.6x past and forward earnings, PNC trades at a respective 9.5x and 9.6x past and forward earnings. In addition, PNC has a beta half of Fifth Third's and maintains much better liquidity. As regards net debt, Fifth Third stands at 92.6% of the market value while PNC at only 45%. Analysts, accordingly rate PNC near a "strong buy". In terms of consensus estimates, EPS for Fifth Third is expected to grow b 93.7% to $1.22, then by 16.4% and 8.5% more in the next two-year period. Assuming a multiple of 11.5x and a conservative 2012 EPS of $1.37, the rough intrinsic value of the stock is $15.76, implying 16.8% upside.

What about PNC? EPS is expected to grow by 8.2% to 46.21, then by 10% and finally by 7.8% in the next two year period. Assuming a multiple of 11x and a conservative 2012 EPS of $6.14, the rough intrinsic value of the stock is $67.54, implying 12.7% upside.

JPMorgan Chase & Co. (JPM): JPM is a financial holding company. JPMorgan Chase operates through bank subsidiaries. The principal subsidiaries are JPMorgan Chase Bank, National Association (JPMorgan Chase Bank, N.A.), a national bank with branches in 23 states across the United States, and Chase Bank USA, National Association (Chase Bank USA, N.A.), a national bank that is the Firm's credit card-issuing bank.

In terms of quarter results, J.P. Morgan reported earnings below expectations. It reported 90 cents per share profit. Although the company performed in consistency with estimates, revenue fell 17%. The drop in revenue was driven by investment banking and trading operations. Furthermore, JPM is highly exposed to European countries that are currently facing insolvency issues.

There are three reasons why investors and surely Pioneer Investment bet on JPMorgan:

1. JPM has better technical indicators. Although technicals were not extremely good, they were better than its competitor, Bank of America's.

2. JPM financials are better than those of Bank of America. JPM is shareholder friendly. While Bank of America only pays a 0.62% dividend, JPM pays a 2.84% dividend. Most importantly, JPM has better operating margins and quarterly and annual earnings growth.

3. JPM has developed a very good strategy during the subprime crisis. It picked up assets of financial companies and banks at very cheap prices. On the other hand, Bank of America did not make good strategic choices. For instance, it picked up liabilities of Countrywide Financial and Merrill Lynch.

Wells Fargo & Company (WFC): WFC is a diversified financial services company. The Company provides banking, insurance, investments, mortgage banking, investment banking, retail banking, brokerage, and consumer finance through banking stores, the Internet and other distribution channels to consumers, businesses and institutions.

The Company operates in three segments: Community Banking, Wholesale Banking, and Wealth, Brokerage and Retirement. The Company provides other financial services through subsidiaries engaged in various businesses, principally: wholesale banking, mortgage banking, consumer finance, equipment leasing, agricultural finance, commercial finance, among other services.

At the beginning of 2012, WFC reported a 20% increase in profits from the fourth quarter, thus surpassing analyst estimates. The bank´s net income increased to $4.11 billion or 73 cents per share while in that same period of the prior year, net income stood at $3.41 or 61 cents. The bank is also making every endeavour to increase its dividend. WFC wants to return more capital to shareholders.

As regards shares, they underwent a 23% increase. Although management is expected to make good investments it is still worried about long-term growth. It is getting close to its median target range of $32.58. It could move up to its high target of $41 and bring a more profit if the markets are favourable. Here is some interesting data about WFC performance:

· Consensus Estimates: $0.73

· Earnings Whisper: $0.72

· Revenue Growth: Dec 2011- (6.60%) March 2012- (2.90%)

· Analysts Recommendations: Strong Buy

· Median Target: $32.58

Franklin Resources Inc. (BEN): BEN is a holding company, which, jointly with its subsidiaries, is considered a global investment management organization. It provides investment choices under the following brands: the Franklin, Templeton, Mutual Series, Bissett, Fiduciary and Darby brand names. In addition, the company operates in two segments: investment management and related services, and banking/finance. Through the two segments, Franklin provides services to investment funds within and without the United States.

In terms of financial expectations, The Zacks Consensus Estimate is $2.16 per share, in other words, about 37% increase. BEN has a strong balance sheet and has recently closed acquisitions which will certainly strengthen the company´s financial results. Unfortunately, there are certain restrictions that could reduce AUM growth and bring more costs. This is what encouraged Pioneer to invest in Franklin Resources. Furthermore, quarter results clearly show that the company is performing great.

In the second quarter of 2011 Franklin reported earnings per share of $2.25, surpassing Zacks Consensus Estimate of $2.00. The company has strong revenue. However, it has been partially offset by increasing operating expenses.

The results surpassed the earnings of $1.55 per share in the prior-year quarter and $2.23 per share in the prior quarter. For the third quarter, the Zacks Consensus Estimate remained the same: at $2.16 per share. Moreover, estimates for 2011 and 2012 also remained stable at $8.82 and $9.72, respectively.

Average earnings stood at 7.7%. This means that the company surpassed Zacks Consensus Estimate. According to Zacks, BEN is ranking at #3. Most importantly, BEN is a highly recommended stock given its business model and fundamentals.

Discover Financial Services (DFS): DFS is a direct banking and payment services company. DFS operates as a bank holding and financial holding company through two banking subsidiaries: Discover Bank and Bank of New Castle. DFS manages its business activities in two segments: Direct Banking and Payment Services.

In terms of quarter results, Discover reported revenue growth of 69.2% vis-a-vis the 16.9% average for the Credit Services Industry. Most importantly, Yahoo Finance considers that DFS is the fastest growing credit card company as regards revenue and Earnings per share growth. The company is ranking at #4. In addition, the company has outperformed its 3 competitors, including Mastercard (MA). By mid 2011, DFS reached a 170% return. DFS is a hot financial stock. Why did Pioneer Investment picked up this stock? Negative sentiments about Discover dissipated with 17 revisions to EPS estimates going up for a net change of 3.4%. Now the company is rated as “buy”.

Apart from being the hottest stock, DFS is also considered cheaper than American Express. It trades at a respective 6.5x and 7.9x past and forward earnings while Amex trades at a respective 12.6x an 11.9x past and forward earnings. As regards future expectations, analysts consider that DFS will completely recover in 2012 thanks to its long position. Although analysts estimate that EPS will decline by 17.7% to $3.34 in 2012, and remain flat in 2013, there are expectations that it will grow by 6.6% by 2014.

Based on a multiple of 11x and a conservative 2013 EPS of $3.29, the rough intrinsic value of the stock is $36.19, implying 36.8% upside. Discover is considered a “buy” and its stock is trading at a lower multiple than its competitors.


Rating: 3.2/5 (9 votes)

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