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PNC Financial (PNC) Reflects Cost Control: Should You Hold?

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On Sep 28, we issued an updated research report on The PNC Financial Services Group (PNC - Free Report) . The company’s cost-containment efforts to drive operational efficiency along with steady loan and deposit growth indicate its upside potential. However, lack of loan diversification remains a concern.

The company outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 2.8%.

In the past 60 days, the consensus estimate has moved up slightly to $10.71 for the current year. PNC Financial carries a Zacks Rank #3 (Hold).

Further, the stock has recorded a slight gain over the past three months compared with 1.6% growth for the industry.

PNC Financial continues to remain focused on reducing expenses. It successfully realized continuous improvement savings program (CIP) goals over the last three years (ended 2017) of about $1.25 billion. For 2018, management has a CIP target of $250 million. The company's consistent focus on core expense management might help generate positive operating leverage in the quarters ahead.

With one of the most attractive business mixes in the banking industry, PNC Financial continues to make steady progress toward improving its top line. A rising rate environment has helped ease margin pressure greatly, in turn, boosting the company’s net interest income. Further, its fee income depicted upward movement in the last reported quarter and is expected to continue increasing with the execution of strategic initiatives.

The company’s strong balance sheet position enables it to strengthen business through strategic initiatives. Notably, loans and deposits have seen a five-year CAGR (2013-2017) of 3% and 4.7%, respectively, with the uptrend continuing in first six months of 2018. Further, with the improving economic backdrop, the company is likely to continue witnessing rising loans and deposits.

PNC Financial has undertaken acquisitions in 2017, which helped it expand product offering and presence. Thus, the company’s bottom line is likely to get further support if it continues to make planned investments.

However, a significant portion of PNC Financial’s loan portfolio comprises commercial loans. Such high exposure to commercial loans depicts lack of diversification, which can be risky for the company amid a challenging economy and competitive markets.

Also, even though PNC Financial boasts an impressive capital deployment plan, its debt/equity ratio and dividend payout ratio are unfavorable compared with the broader industry. Hence, its capital deployment activities might not be sustainable.

Stocks to Consider

First Financial Bankshares, Inc. (FFIN - Free Report) has witnessed stable estimates for current-year earnings in the past 60 days. Over the past six months, the company’s share price has been up 29.7%. It currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

First Mid-Illinois Bancshares, Inc.’s (FMBH - Free Report) 2018 earnings estimates have been revised slightly upward for the past 60 days. Additionally, the stock has jumped 11.8%, in six months’ time. It currently carries a Zacks Rank #2.

Farmers & Merchants Bancorp Inc. (FMAO - Free Report) estimates for current-year earnings have been stable, over the past 60 days. The company’s shares have risen 5.1% in the past six months. It sports a Zacks Rank of 1, at present.

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