"They are underperforming," said Stephen Biggar, director of financial-institution research at Argus.
JPM fell 49 cents to close at $106.36 despite reporting $2.29 in earnings per share, beating analysts' consensus expectations by 7 cents. PNC rose 33 cents to end the day at $138.32 after the firm said it earned $2.72 per share vs. the $2.59 analysts had forecast.
In light of the earnings beats, Biggar reiterated his $130 price target for JPM and $175 target on PNC. He also maintained a "Hold" rating on Citigroup (C) and Wells Fargo (WFC) despite both reporting weaker-than-expected profits.
Biggar likes the names because all of the firms recently passed Federal Reserve "stress tests" that paved the way for them to announce double-digit percentage increases to their dividend and share-buyback programs.
Banks that pass these tests -- which aim to determine whether firms can survive an economic downturn and keep lending -- can legally boost their dividends and buybacks. JPMorgan raised its quarterly dividend 43% to 80 cents a share, and also announced a $20.7 billion share buyback. Similarly, PNC plans to raise the dividend by 20 cents to 95 cents a share and buy back up to $2 billion of stock over the coming year.
Citigroup also raised its dividend to 45 cents per share from a previous 32 cents and intends to buy back up to $17.6 billion of stock. Wells Fargo likewise plans to increase its dividend to 43 cents per share from a current 39 cents, and also intends to buy back up to $24.5 billion of stock over the next year.
"Almost universally, the banks will have positive increases in dividends and buybacks," Biggar said. "It is just a testament to the capital rebuild and strong capital levels these banks have had to have gotten approval for such robust additions to capital returns."
However, bank stocks are lagging the broader market despite such positives. The Standard & Poor's Banks Select Industry Index has fallen 0.31% year to date vs. a 4.8% YTD gain for the S&P 500.
Biggar said the weak performance stems from the flattening yield curve. "Banks are interest-rate-sensitive vehicles, and they often lend in the long term and borrow shorter and make money on the difference," he said. "Any time the short-term and long-term rates come close its problematic."