Bull of the Day: PrivateBancorp (PVTB) - Bull of the Day
September 04 2013 - 4:37AM
Zacks
What industry benefits most from an expanding economy
and
rising interest rates? Banking, of course. And while the Financial
sector has led the market for the past year, with Consumer
Discretionary and Healthcare close behind, there are many
opportunities still to be found in small and mid-size banks.
PrivateBancorp (PVTB) is the $1.6 billion
holding company for The PrivateBank and Trust Company based in
Chicago, IL. The PrivateBank provides commercial middle market
banking services, as well as personal and private banking and
wealth management.
PrivateBancorp has $13.5 billion in total assets
and operates 36 offices in 10 states. Their focus on customized
business and personal financial services to middlemarket companies,
as well as affluent individuals, professionals, entrepreneurs, and
their business interests, combines the attentiveness to wealthy
clients of a big Wall Street bank with the personal touch of a
smaller, local bank.
On July 18, PVTB offered up a 12% EPS surprise and
analysts scrambled to raise estimates for this year and next,
taking the 2013 consensus from $1.36 to $1.47 and 2014's from $1.45
to $1.54. Here's a graphic look at the earnings momentum that once
again has put PVTB on the Zacks #1 Rank Strong Buy list...
![](http://staticzacks.net/images/zacks/blogs/1378240365_scaled_425.jpg)
(Click image to enlarge)
Loan Growth and Cross-Selling
PVTB completed its TARP repayment obligations last
October and, according to analysts, is aggressively pursuing
quality loan growth. With services that range across a spectrum of
corporate and wealth needs, from treasury management and deposit
services to capital markets and portfolio construction, PVTB is
able to meet a wide array of client demands.
Fee-based revenues have increased 8.8%
year-over-year and comprised 22% of 2Q revenues compared to 17% in
2008-2010. While EPS estimates between 2013 and 2014 have narrowed
recently to only 4.7% growth ($1.47 to $1.54), one firm has
recently introduced its 2015 estimate of $1.72 based on the
steepening yield curve.
That profit acceleration into 2015, as short-term
rates are expected to rise even faster, represents 11.7%
year-over-year EPS growth. But it also seems to imply that analysts
may be behind the curve for 2014 estimates. And that may simply be
a function of uncertainty about how the yield curve will shift over
the coming quarters.
Levered to Rising Rates
According to Raymond James analysts,
"PrivateBancorp would be a prime beneficiary of an increase in
rising short-term interest rates given the highly asset-sensitive
nature of its balance sheet. Specifically, variable rate loans
accounted for 94% of its loan portfolio as of June 30 with 63%
indexed to one-month LIBOR."
On the valuation front, recent JPMorgan research
reveals that PVTB trades at 1.6X tangible book value compared to
the median for small and midcap banks of 1.8X. For 2013 EPS
estimates, PVTB trades at 16X vs. 16.2X for the median of the
group. And for 2014, PVTB trades right at the median of 15.4X.
This data is from their August 26 report when PVTB
was trading $23.44. As of Tuesday's close of $21.99, PVTB is over
6% cheaper. And that makes all those valuation metrics that much
more attractive.
So attractive, in fact, that when I saw the
unreasonable sell-off in PVTB over the past 5 trading sessions
since August 26, on below average volume, I had to add the stock to
the Zacks Follow The Money Portfolio. I encourage you to see if
it's the small bank, high-quality growth story for you too.
Kevin Cook is a Senior Stock Strategist for
Zacks where he runs the Follow The Money portfolio.
SPDR-KBW BANK (KBE): ETF Research Reports
SPDR-KBW REG BK (KRE): ETF Research Reports
PRIVATEBANCORP (PVTB): Free Stock Analysis Report
SPDR-FINL SELS (XLF): ETF Research Reports
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