PNC Bank Corp. received a boost on Monday from Dean Witter, Discover & Co., which raised its rating of the Pittsburgh company to "accumulate" from "neutral."
"The stock is attractively valued again," said Dean Witter analyst Anthony R. Davis. And meanwhile, he noted, "PNC's fundamentals continue to strengthen."
The stock was unchanged at $29.625 in late trading on Monday.
Since June 30. Mr. Davis noted. PNC shares have been "noticeably weaker" than those of other regional banks - failing 12% while others have edged down an average of 2.5%.
$36 Target Set
The analyst has a $36 price target for the stock during the next 12 months, believing it will sell at 70% of the Standard & Poor's 500 index on a price-to-earnings basis. It currently trades at only 55% of this "market multiple'"
That, coupled with the stock's current yield of 4% - highest among the regional banks he follows - puts PNC's potential total return at 28%, Mr. Davis said.
The analyst noted several other favorable factors about PNC.
During the second quarter, the bank's return on equity was 17.5% and its efficiency ratio a trim 52%.
The efficiency ratio is a bank's gross operating expense divided by revenues on a fully taxable basis.
PNC had the second best ratio among the nation's 50 largest banks - behind only Republic New York Corp., according to Keefe, Bruyette & Woods Inc.
Mr. Davis also likes PNC's acquisition strategy, saying the bank has been "disciplined" and limited itself to deals that have added significantly to earnings.
Prudential Analyst Skeptical
But PNC also has its critics.
Last month, George M. Salem of Prudential Securities Inc. said he was "disappointed" in the bank's earnings and cut his rating to "hold."
Earlier in the year, he had dubbed PNC shares as his "single best idea" among banking stocks.
Mr. Salem said an 18-basis-point decline in PNC's second-quarter net interest margin was the worst deterioration among banks he follows.
He expressed concern that net interest income will be flat or even decline.
The Prudential analyst said Monday that he is also concerned that PNC is not well positioned for flat or declining interest rates.
At the end of the second quarter, 45% of the bank's earning assets were composed of investment securities, the highest level among banks he tracks, Mr. Salem said.
Investment securities "re-price" far more quickly than loans and therefore place added pressure on the net interest margin when money market rates are either stable or declining.
Refinancing Risk
Moreover, said Mr. Salem, a substantial portion of PNC securities is mortgage-related and thus vulnerable to rapid prepayment and accelerated amortization as borrowers react to lower rates by refinancing their mortgages.
The Prudential analyst also lacks enthusiasm for PNC's latest proposed acquisition, of First Eastern Corp., Wilkes-Barre, Pa., which has suffered from credit-related problems.
