Valuing Banking Shares, Part I

Includes: PNC, USB, WFC
by: CRG Research

In this series, we are going to value the common equity shares of Wells Fargo (NYSE:WFC), U.S. Bancorp (NYSE:USB) and PNC Financial (NYSE:PNC). We'll start off with a look at the changes in financial performances and positions between 2008 and 2011.

Wells Fargo's revenue peaked in 2009 and declined 12.6 percent in 2011 compared with the 2009 high. U.S. Bancorp's revenue is at a four-year high as revenue in 2011 increased 4 percent compared with 2010. PNC's revenue in 2011 was 15.7 percent below the 2009 level. PNC had the highest revenue coefficient of variation followed by Wells Fargo. U.S. Bancorp had the least risky revenue stream between 2008 and 2011.

Wells Fargo and U.S. Bancorp's net income were at four-year highs in 2011. PNC's net income declined 10.4 percent in 2011 compared with the 2010 level. In terms of business risk, Wells Fargo and PNC had the highest net income coefficient of variation. U.S. Bancorp had the least-risky net income stream between 2008 and 2011.

Between 2009 and 2011, Well Fargo's cash flow from operations declined 50 percent. Wells Fargo's net income is increasing while cash flow from operations is declining suggesting declining quality of earnings. U.S. Bancorp's cash flow from operations increased almost 50 percent between 2010 and 2011 and is at a four-year high. PNC's cash flow from operations is stable and has been roughly $6 billion over the past four years.

The management at all three firms has done an excellent job of increasing total equity over the past four years. Between 2010 and 2011, Well Fargo's total equity increased 11 percent. U.S. Bancorp's total equity increased 15 percent. PNC's total equity increased 12.6 percent.

Total assets is trending higher for all three firms. Well Fargo's total assets surpassed the 2008 level in 2011. USB's total assets steadily increased. PNC's total assets is increasing, but is still below the 2008 level.

Well Fargo's cash balance is declining. USB's cash balance is increasing and PNC's cash balance has been pretty much flat.

To be continued...

Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial advisor. Christopher Grosvenor does not know your financial situation and ability to bear risk and thus his opinions may not be suitable for all investors.

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