Investors pumped billions into the financial stocks following the Trump victory as we see the industry filling the valuation gap between the major indexes on a P/E multiple basis. Donald Trump's economic plan is expected to be a game changer for the U.S. economy which would eventually be beneficial to the banks that have been under pressure in the recent years owing to stricter regulations and low interest rates. That said, PNC Financial (NYSE:PNC) which has been among our picks in the industry has also performed well during this period, as it has outperformed the Financial Select Sector SPDR ETF(NYSEARCA:XLF) and KBW Nasdaq Bank Index. Despite the fact that we take a liking to PNC's strong fundamentals and that we upgrade our target price for the stock driven by increasing likelihood of multiple rate hikes by the Federal Reserve in years to come, we downgrade the stock from buy to neutral on valuation basis.
We noted that strong liquidity position and improving operational efficiency are the primary factors behind PNC's fundamentals strength as we build our bullish case citing the bright outlook for consumer lending. We still see these factors in place and no weakness in the business. To our thinking, PNC will be able to record a significant EPS growth over the next two years, however, stirred up by the U.S. presidential election result, the current valuation already reflects the future earnings growth.
