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Balanced View on PNC Financial

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On Jun 5, 2013, we reiterated our long-term recommendation on The PNC Financial Services Group, Inc. (PNC - Free Report) at Neutral based on its diverse revenue mix, strong capital base and expense reduction initiatives. However, stringent regulations as well as pressures on the banking sector might act as deterrents to the company’s fundamentals.

Why Neutral?

PNC Financial reported first-quarter 2013 earnings of $1.76 per share, which surpassed the prior-year quarter figure of $1.44 and easily beat the Zacks Consensus Estimate of $1.57.

Better-than-expected results reflected an improved top line. Moreover, lower nonperforming assets and operating expenses as well as healthy capital level were the positives. However, an increase in provision for credit losses and net charge-offs were matters of concern.

PNC Financial has been focused on strategic acquisitions since 2008, to generate revenue growth. The acquisitions of National City and the retail banking franchise of Flagstar Bank, the purchase of branches from a subsidiary of BankAtlantic Bancorp Inc and the addition of the RBC Bank (USA) bear testimony to the fact.

Further, the company’s focus on expense control has enabled it to offset continued investments in distribution channels. Moreover, PNC Financial’s strong balance sheet position and its shareholder-friendly approach – consistent dividend payment even during the financial crisis and consecutive dividend increases over the past 4 years – boost investors’ confidence in the stock.

However, low short-term interest rates along with persistent narrow spreads at the short end of the yield curve continue to adversely impact both net interest income and net interest margin of PNC Financial. Though the U.S. economy posted stable to improving economic data during the quarter, continued political uncertainty remains plausible concerns.

For PNC Financial, the Zacks Consensus Estimate for 2013 and 2014 remained stable at $6.69 and $6.89 per share, over the last 30 days. The company currently carries a Zacks Rank #2 (Buy).

Other Major Banks to Consider

Some other banks that are performing well include JPMorgan Chase & Co. (JPM - Free Report) , Fifth Third Bancorp (FITB - Free Report) and Citigroup Inc. (C - Free Report) , all of which carry the same Zacks rank as PNC Financial.

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