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Here's Why You Should Hold PNC Financial (PNC) at Present
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The PNC Financial Services Group, Inc.’s (PNC - Free Report) solid loan and deposit balances are expected to support its balance sheet. Also, strategic acquisitions are expected to strengthen the bank’s operations. However, expectations of a decline in the net interest income (NII) on higher funding costs and a lack of diversification in the loan portfolio are concerning.
The bank’s total loans and deposits witnessed a four-year (2018-2022) compound annual growth rate (CAGR) of 9.6% and 13%, respectively. The uptrend continued sequentially in the first half of 2023 in terms of loans, while deposits declined. Given the company’s well-diversified loan base, its solid loan balances are likely to offer support. Our model estimates total loans and deposit balances to rise, seeing a CAGR of 0.6% and 0.4%, respectively, over the next three years.
PNC Financial remains committed to strengthening its business through strategic initiatives. In 2022, the company closed the buyout of Linga, a point of sale (POS) and payment solutions firm, in a bid to expand corporate payment capabilities in the hospitality and restaurant industry space.
In 2021, the company completed the conversion of BBVA USA customers and employees to PNC Financial's network and platforms. Thus, its bottom line is likely to get further support if it continues to make planned investments and diversify its business mix.
PNC Financial continues to progress with its capital distribution strategy. The company has a 100-million repurchase plan in place that was authorized in second-quarter 2022. Of this, nearly 46% was available for repurchase as of Jun 30, 2023. Given the likelihood of stringent regulatory capital requirements post the 2023 stress test, PNC is expected to undertake modest share repurchase activity in the third quarter of 2023.
Nonetheless, in July 2023, the company sequentially hiked the quarterly cash dividend on the common stock by 3.3% to $1.55 per share. Also, the company’s available cash and due from banks balance at the second-quarter 2023 end was $6.19 billion, whereas its times interest earned ratio was 4. Hence, with ample cash balances and earnings strength, its capital deployment activities seem sustainable.
However, PNC’s non-interest expenses witnessed a four-year CAGR (2018-2022) of 6.3%. The rising trend continued in the first half of 2023. Though the company aims at cost-containment measures (cost reduction target of $450 million in 2023 through the continuous improvement program), a rising expense base is likely to continue affecting the bottom line in the near term. We estimate the metric to reach $13.48 billion in the current year.
Going forward, higher funding costs are expected to weigh on PNC Financials’ NII. Particularly, the hike in interest rates that supported NII growth is not expected to continue. Such a decline in NII might impede the company’s top-line growth. Accordingly, management expects the metric to decline 3-4% sequentially in the third quarter of 2023. Though we anticipate the metric to rise 5.5% in the current year, it will decline 3.9% in 2024.
The majority of PNC Financial’s loan portfolio, around 68% of the total loans as of Jun 30, 2023, comprises total commercial loans. The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
In the past three months, shares of this Zacks Rank #3 (Hold) company have lost 1% against the industry's 2.7% rise.
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are First Business Financial Services (FBIZ - Free Report) and Citizens Financial Services (CZFS - Free Report) .
First Business Financial’s current-year earnings estimates have been unrevised over the past 30 days. FBIZ shares have edged down 0.1% over the past three months. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for Citizens Financial’s current-year earnings has been revised 74% upward over the past 30 days. Over the past three months, CZFS’ share price has decreased 36.9%. The company currently carries a Zacks Rank #2.
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Here's Why You Should Hold PNC Financial (PNC) at Present
The PNC Financial Services Group, Inc.’s (PNC - Free Report) solid loan and deposit balances are expected to support its balance sheet. Also, strategic acquisitions are expected to strengthen the bank’s operations. However, expectations of a decline in the net interest income (NII) on higher funding costs and a lack of diversification in the loan portfolio are concerning.
The bank’s total loans and deposits witnessed a four-year (2018-2022) compound annual growth rate (CAGR) of 9.6% and 13%, respectively. The uptrend continued sequentially in the first half of 2023 in terms of loans, while deposits declined. Given the company’s well-diversified loan base, its solid loan balances are likely to offer support. Our model estimates total loans and deposit balances to rise, seeing a CAGR of 0.6% and 0.4%, respectively, over the next three years.
PNC Financial remains committed to strengthening its business through strategic initiatives. In 2022, the company closed the buyout of Linga, a point of sale (POS) and payment solutions firm, in a bid to expand corporate payment capabilities in the hospitality and restaurant industry space.
In 2021, the company completed the conversion of BBVA USA customers and employees to PNC Financial's network and platforms. Thus, its bottom line is likely to get further support if it continues to make planned investments and diversify its business mix.
PNC Financial continues to progress with its capital distribution strategy. The company has a 100-million repurchase plan in place that was authorized in second-quarter 2022. Of this, nearly 46% was available for repurchase as of Jun 30, 2023. Given the likelihood of stringent regulatory capital requirements post the 2023 stress test, PNC is expected to undertake modest share repurchase activity in the third quarter of 2023.
Nonetheless, in July 2023, the company sequentially hiked the quarterly cash dividend on the common stock by 3.3% to $1.55 per share. Also, the company’s available cash and due from banks balance at the second-quarter 2023 end was $6.19 billion, whereas its times interest earned ratio was 4. Hence, with ample cash balances and earnings strength, its capital deployment activities seem sustainable.
However, PNC’s non-interest expenses witnessed a four-year CAGR (2018-2022) of 6.3%. The rising trend continued in the first half of 2023. Though the company aims at cost-containment measures (cost reduction target of $450 million in 2023 through the continuous improvement program), a rising expense base is likely to continue affecting the bottom line in the near term. We estimate the metric to reach $13.48 billion in the current year.
Going forward, higher funding costs are expected to weigh on PNC Financials’ NII. Particularly, the hike in interest rates that supported NII growth is not expected to continue. Such a decline in NII might impede the company’s top-line growth. Accordingly, management expects the metric to decline 3-4% sequentially in the third quarter of 2023. Though we anticipate the metric to rise 5.5% in the current year, it will decline 3.9% in 2024.
The majority of PNC Financial’s loan portfolio, around 68% of the total loans as of Jun 30, 2023, comprises total commercial loans. The current rapidly changing macroeconomic backdrop may put some strain on commercial lending. Thus, the lack of loan portfolio diversification is likely to hurt the company’s financials if the economic situation worsens.
In the past three months, shares of this Zacks Rank #3 (Hold) company have lost 1% against the industry's 2.7% rise.
Finance Stocks Worth Considering
A couple of better-ranked stocks from the finance sector are First Business Financial Services (FBIZ - Free Report) and Citizens Financial Services (CZFS - Free Report) .
First Business Financial’s current-year earnings estimates have been unrevised over the past 30 days. FBIZ shares have edged down 0.1% over the past three months. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for Citizens Financial’s current-year earnings has been revised 74% upward over the past 30 days. Over the past three months, CZFS’ share price has decreased 36.9%. The company currently carries a Zacks Rank #2.