'Real Deal' Stocks: Volume 5 - (PNC Financial Services, U.S. Bancorp, And Wells Fargo)

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Includes: BAC, C, JPM, PNC, USB, WFC
by: Stan Stafford

Summary

"Real Deal" is an acronym I created to help measure stocks against eight different criteria, such as revenue and earnings growth, returns on assets and equity, and price returns.

In this article, I will be reviewing six stocks from the banking industry.

Three of the stocks reviewed pass the "Real Deal" criteria, while three of them do not.

Overview

Recently, I wrote volume 4 of a series of articles related to what I like to call "Real Deal" stocks. Real Deal stocks are stocks that I believe are worth strong consideration as buys for long-term investors. "Real Deal" is an acronym that refers to the following metrics:

  • R - Revenue Growth
  • E - Equity (more specifically, Return on Equity)
  • A - Assets (more specifically, Return on Assets)
  • L - Leverage (more specifically, Financial Leverage)
  • D - Dividend Growth
  • E - Earnings Growth
  • A - Advanced Metrics
  • L - Long-Term Price Returns

When reviewing whether or not a stock is a Real Deal stock, the stock has to pass criteria set forth for seven out of the eight metrics listed above. For volume 5, I will be looking at the following stocks from the Financial/Banking industry:

  • Bank of America (NYSE:BAC)
  • Citigroup (NYSE:C)
  • JPMorgan Chase (NYSE:JPM)
  • PNC Financial Services (NYSE:PNC)
  • U.S. Bancorp (NYSE:USB)
  • Wells Fargo (NYSE:WFC)

NOTE: One thing I didn't mention in volume 1 of this article is that while the metrics used will not change, the criteria individual companies are gauged against will vary based on the industry under review.

Revenue Growth

In order to pass the revenue growth criterion of a Real Deal stock, the stock has to have managed positive revenue growth over the past five years.

Looking at the chart below, you can see that PNC Financial Services, U.S. Bancorp, and Wells Fargo are the three stocks that pass this criterion, while JPMorgan Chase, Citigroup, and Bank of America all have had negative revenue growth over the past five years.

BAC Revenue (<a href=

BAC Revenue (TTM) data by YCharts

Equity (Return on Equity)

In order to pass the equity criterion of a Real Deal stock, the stock has to have a return on equity value of 8% or higher. Looking at the chart below, you can see that Citigroup and Bank of America are the two stocks that do not pass this criterion, with returns on equity well below 8%.

BAC Return on Equity Chart

BAC Return on Equity (TTM) data by YCharts

Assets (Return on Assets)

In order to pass the assets criterion of a Real Deal stock, the stock has to have a return on assets value over 1%. Looking at the chart below, you can see that JPMorgan Chase, Citigroup, and Bank of America are the three stocks that do not pass this criterion.

BAC Return on Assets Chart

BAC Return on Assets (TTM) data by YCharts

Leverage (Financial Leverage)

In order to pass the leverage criterion of a Real Deal stock, the stock has to have financial leverage of 1.00 or less.

Looking at the chart below, you can see that PNC Financial Services is the only stock to pass this criterion.

BAC Financial Leverage (Annual) Chart

BAC Financial Leverage (Annual) data by YCharts

Dividend Growth

In order to pass the dividend growth criterion of a Real Deal stock, the stock has to have paid a dividend that has grown substantially over the past five years.

Citigroup is the only stock that has not increased its dividend over this time period. The other five stocks have all increased their dividend by 380% or more over the past five years.

Earnings Growth

In order to pass the earnings growth criterion of a Real Deal stock, the stock has to have seen positive earnings growth over the past ten years.

Looking at the chart below, you can see that Bank Of America and Citigroup are the two stocks that do not pass this criterion.

BAC EPS Basic Chart

BAC EPS Basic (TTM) data by YCharts

Advanced Metrics

For Advanced Metrics, I will be looking at two items: the value score and the fundamental score calculated by YCharts. Details regarding these two scores can be found here and here. In order to pass this criterion, stocks need to have a fundamental score of 8 or higher and a value score of 9 or higher.

Looking at the chart below, you can see that Bank of America and Citigroup are the two stocks that do not pass the fundamental score portion of this criterion.

BAC Fundamental Score Chart

BAC Fundamental Score data by YCharts

For the value score, Bank of America and Citigroup are once again the two stocks that do not pass the criterion.

BAC Value Score Chart

BAC Value Score data by YCharts

Long-Term Price Returns

In order to pass the long-term total price returns criterion of a Real Deal stock, the stock has to have returned 50% or more over the past five years.

Looking at the chart below, you can see that JPMorgan Chase, Citigroup, and Bank of America do not pass this criterion.

BAC Chart

BAC data by YCharts

Conclusion

Let's take a look at how each stock measures up.

R E A L D E A L
Bank of America Fail Fail Fail Fail Pass Fail Fail Fail

Citigroup

Fail Fail Fail Fail Fail Fail Fail Fail
JPMorgan Chase Fail Pass Fail Fail Pass Pass Pass Fail
PNC Financial Services Pass Pass Pass Pass Pass Pass Pass Pass
U.S. Bancorp Pass Pass Pass Fail Pass Pass Pass Pass
Wells Fargo Pass Pass Pass Fail Pass Pass Pass Pass
Click to enlarge

Looking at the table above, you can see that PNC Financial Services, U.S. Bancorp, and Wells Fargo are the three stocks that qualify as "Real Deal" stocks, with U.S. Bancorp and Wells Fargo passing 7 out of the 8 metrics and PNC Financial Services passing all 8.

As the only stock to pass all 8 criteria, PNC Financial Services continues to perform well in a challenging industry. With a strong focus on expense management and a commitment to returning shareholder value (according to the company's latest earnings call, PNC increased its dividend 9% and repurchased 2.6 million shares of outstanding common stock), I believe the company will continue to provide significant long-term returns to investors.

U.S. Bancorp also continues to deliver. The company posted solid Q2 results, and returned 75% of earnings to shareholders through dividends and share repurchases. With solid loan growth and strong credit quality, U.S. Bancorp should continue yielding strong results.

Wells Fargo also has been performing just as well. The company's Q2 earnings were up compared to the same period last year, and so were the company's loan growth, deposits, and credit performance.

While I believe that PNC Financial Services, U.S. Bancorp, and Wells Fargo are great companies, it doesn't mean that the other companies included in this article should be avoided.

Two things to keep in mind when looking at this article (or future volumes):

1. The "Real Deal" criteria are not a one-stop shop for stock buying. It should only be the first step in taking a comprehensive look at investment opportunities. As always, I suggest individual investors perform their own research before making any investment decisions.

2. The criteria I have set up for "Real Deal" stocks heavily favor dividend-paying stocks, since non-dividend paying stocks will have to pass all other criteria in order to be considered a passing stock.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.