What industry benefits most from an expanding economy
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.
(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,
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...
(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
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
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
Follow The Money
SPDR-KBW BANK (KBE): ETF Research Reports
SPDR-KBW REG BK (KRE): ETF Research Reports
PRIVATEBANCORP (PVTB): Free Stock Analysis
SPDR-FINL SELS (XLF): ETF Research Reports
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