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Solid Balance Sheet Aids PNC Financial (PNC), High Costs Ail
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The PNC Financial Services Group, Inc. (PNC - Free Report) enjoys solid loan and deposit balances, which are expected to keep supporting financials. Also, its inorganic expansion strategies have helped diversify its business mix. However, elevated expenses and declining net-interest income (NII) are major headwinds.
PNC Financial stands solid from the balance-sheet perspective as its total loans and deposits have been rising over the years. We estimate total deposits to increase by 2.5% sequentially in third-quarter 2023. With decent pipelines, PNC is well poised for loan balance growth in 2023. It expects loans to rise in the 1-3% band in 2023.
The company remains committed to strengthening its business through strategic initiatives. In September 2022, it closed the buyout of Linga, a POS and payment solutions firm, in a bid to expand corporate payments capabilities in the hospitality and restaurant industry space.
The acquisition of BBVA USA customers and employees to PNC Financial's network and platforms, which was completed in June 2021, boosted its foothold as a commercial bank in all top 30 markets of the United States. Thus, the bottom line is likely to get further support if it continues to make planned investments and diversify its business mix.
PNC Financial’s capital deployment activities enhance shareholders’ value. In July 2023, it sequentially hiked quarterly cash dividend on the common stock by 3.3% to $1.55 per share. Regular dividend payments along with a share repurchase plan in place is likely to stoke investors’ confidence in the stock in the upcoming period.
PNC’s available cash balance at first-quarter 2023 end was $5.9 billion while its times interest earned ratio was 5.2. Hence with ample liquidity, its capital-deployment activities seem sustainable.
On the flip side, despite the company’s NII rising over the years, higher funding costs are expected to affect NII going forward. In fact, management expects the metric to decline 2-4% sequentially in second-quarter 2023. Such decline in NII might impede its top-line growth.
Also, PNC’s escalating non-interest expenses due to rising branch-related occupancy expenses and increased technology investments are concerning. Accelerated investment spend on technology is likely to continue affecting the bottom line in the near term. We estimate the metric to reach $13.5 billion in the current year.
The majority of PNC Financial’s loan portfolio, nearly 69% as of Mar 31, 2023, comprises of commercial loans. Given the current rapidly changing macroeconomic backdrop and high interest rates may put some strain on commercial lending. Moreover, in case of any economic downturn, the asset quality of the loan category might deteriorate. Therefore, such a lack of diversification in the loan portfolio can be risky for the company amid an uncertain economy and competitive markets.
Shares of this Zacks Rank #3 (Hold) company have plunged 21.9% against growth of 0.2% recorded by the industry over the past year.
The Zacks Consensus Estimate for VEL’s 2023 earnings has been revised 14.8% upward over the past 60 days. The stock has increased 14.4% over the past six months.
The consensus estimate for CCB’s fiscal 2023 earnings has been revised 4.9% upward over the past 60 days. The company’s share price has decreased 16.7% over the past six months.
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Solid Balance Sheet Aids PNC Financial (PNC), High Costs Ail
The PNC Financial Services Group, Inc. (PNC - Free Report) enjoys solid loan and deposit balances, which are expected to keep supporting financials. Also, its inorganic expansion strategies have helped diversify its business mix. However, elevated expenses and declining net-interest income (NII) are major headwinds.
PNC Financial stands solid from the balance-sheet perspective as its total loans and deposits have been rising over the years. We estimate total deposits to increase by 2.5% sequentially in third-quarter 2023. With decent pipelines, PNC is well poised for loan balance growth in 2023. It expects loans to rise in the 1-3% band in 2023.
The company remains committed to strengthening its business through strategic initiatives. In September 2022, it closed the buyout of Linga, a POS and payment solutions firm, in a bid to expand corporate payments capabilities in the hospitality and restaurant industry space.
The acquisition of BBVA USA customers and employees to PNC Financial's network and platforms, which was completed in June 2021, boosted its foothold as a commercial bank in all top 30 markets of the United States. Thus, the bottom line is likely to get further support if it continues to make planned investments and diversify its business mix.
PNC Financial’s capital deployment activities enhance shareholders’ value. In July 2023, it sequentially hiked quarterly cash dividend on the common stock by 3.3% to $1.55 per share. Regular dividend payments along with a share repurchase plan in place is likely to stoke investors’ confidence in the stock in the upcoming period.
PNC’s available cash balance at first-quarter 2023 end was $5.9 billion while its times interest earned ratio was 5.2. Hence with ample liquidity, its capital-deployment activities seem sustainable.
On the flip side, despite the company’s NII rising over the years, higher funding costs are expected to affect NII going forward. In fact, management expects the metric to decline 2-4% sequentially in second-quarter 2023. Such decline in NII might impede its top-line growth.
Also, PNC’s escalating non-interest expenses due to rising branch-related occupancy expenses and increased technology investments are concerning. Accelerated investment spend on technology is likely to continue affecting the bottom line in the near term. We estimate the metric to reach $13.5 billion in the current year.
The majority of PNC Financial’s loan portfolio, nearly 69% as of Mar 31, 2023, comprises of commercial loans. Given the current rapidly changing macroeconomic backdrop and high interest rates may put some strain on commercial lending. Moreover, in case of any economic downturn, the asset quality of the loan category might deteriorate. Therefore, such a lack of diversification in the loan portfolio can be risky for the company amid an uncertain economy and competitive markets.
Shares of this Zacks Rank #3 (Hold) company have plunged 21.9% against growth of 0.2% recorded by the industry over the past year.
Image Source: Zacks Investment Research
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are Velocity Financial, Inc. (VEL - Free Report) and Coastal Financial Corporation (CCB - Free Report) , currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VEL’s 2023 earnings has been revised 14.8% upward over the past 60 days. The stock has increased 14.4% over the past six months.
The consensus estimate for CCB’s fiscal 2023 earnings has been revised 4.9% upward over the past 60 days. The company’s share price has decreased 16.7% over the past six months.