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On Nov 22, 2013, we reiterated our long-term recommendation on The PNC Financial Services Group, Inc. (PNC - Analyst Report) at Neutral, based on its strong third-quarter earnings and prudent expense management. However, stringent regulations and a slow economic recovery might be deterrents to the company’s fundamentals.

Why Neutral?

PNC Financial reported third-quarter 2013 earnings per share of $1.79, which outpaced the Zacks Consensus Estimate of $1.61. Moreover, this compared favorably with $1.64 earned in the prior-year quarter.

Better-than-expected results benefited from fall in operating expenses and provision for credit losses. Further, enhanced credit quality and healthy capital ratios were the positives. However, lower revenues mainly due to fall net interest income and non-interest income is a concern.

We are encouraged by PNC Financial’s opportunistic acquisitions since 2008, which are expected to boost revenues. The company completed the acquisition of National City in 2008 and the retail banking franchise of Flagstar Bank in 2011. Moreover, in Mar 2012, the company completed the purchase of RBC Bank (USA) and expanded its footprint in the Southeast markets.

Further, PNC Financial’s focus on expense control and efficient management has enabled it to mitigate any negative impact from continued investments in distribution channels. Moreover, PNC Financial’s strong balance sheet position and its ability to consistently pay dividend even during the financial crisis are expected to boost investors’ confidence in the stock.

On the flip side, decline in net interest income and net interest margin due to reduced purchase accounting accretion as well as lower yields on loans and securities remain challenges. Additionally, a protracted economic recovery and stricter regulatory requirements might weigh on the company’s expansion plans going forward.  

For PNC Financial, the Zacks Consensus Estimate for 2013 nudged up 0.1% to $7.17 per share in the last 30 days. Moreover, for 2014, the Zacks Consensus Estimate rose 0.1% to $6.94 per share over the same time frame. Thus, the company currently carries a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked regional banks include BofI Holding, Inc. (BOFI - Snapshot Report), Preferred Bank (PFBC - Snapshot Report) and KeyCorp. (KEY - Analyst Report). While BofI Holding and Preferred Bank have a Zacks Rank #1 (Strong Buy), KeyCorp holds a Zacks Rank #2 (Buy).

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