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Will Fee Income Support PNC Financial (PNC) in Q3 Earnings?

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The PNC Financial Services Group (PNC - Free Report) is scheduled to report third-quarter 2018 results on Oct 12, before the opening bell. Its revenues and earnings are projected to reflect year-over-year growth.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Results benefited from an improvement in net interest income, as well as non-interest income, partially offset by higher expenses.

Moreover, PNC Financial has an impressive earnings surprise history. It has surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 2.8%.

The PNC Financial Services Group, Inc Price and EPS Surprise

Now, before we take a look at what our quantitative model predicts, let’s discuss the factors that are likely to impact PNC Financial’s third-quarter results.

Factors to Impact Q3 Results

Net Interest Income (NII) to Improve: The third quarter witnessed a slowdown in commercial, as well as real estate lending, partially offset by higher consumer loans. However, the company’s Zacks Consensus Estimate for average interest-earning assets of $331.2 billion for the to-be-reported quarter reflects growth of 1.4% year over year.

Also, net interest margin (NIM) is likely to have benefited from the rising interest rates, while flattening of yield curve will likely somewhat hurt. The consensus estimate of 2.99% for PNC Financial’s NIM in the Sep-end quarter indicates 8-basis point year-over-year expansion. Thus, given the improvement in the earning assets and margins, the company’s NII is expected to improve.

Management expects NII to grow in the low-single digit, on a sequential basis.

Also, the Zacks Consensus Estimate for NII for the third quarter is $2.5 billion, which reflects an improvement of 5.2% year over year.

Non-Interest Income to Rise: Although the performance of the equity markets was not very impressive during the Jul-Sep quarter, the company’s asset management revenues are expected to witness a rise, supported by higher earnings from its equity investment in BlackRock. Consensus estimates for asset management revenues are $470 million, which reflects growth of 11.6% year over year.

Moreover, given the continued momentum in customer activity, in terms of using credit and debit cards, PNC Financial’s consumer services revenues are likely to improve. The Zacks Consensus Estimate for consumer services revenues of $382 million reflects growth of 7% year over year.

Nonetheless, with a slowdown in refinancing activities during the quarter under review, due to the continued rise in rates, mortgage originations have declined. Thus, residential mortgage revenues are also expected to remain lower. The Zacks Consensus Estimate for the same is $91 million, highlighting a decline of 12% year over year.

With improvement in almost all components of fee income, total non-interest income is expected to reflect growth. The Zacks Consensus Estimate for non-interest income is $1.85 billion, indicating 4% rise on a year-over-year basis.

Thus, given the rise in NII as well as fee income, total revenues are likely to display improvement. The Zacks Consensus Estimate for sales for the third quarter is $4.3 billion, reflecting an improvement of 4.9% year over year.

Controlled Expenses: The company’s continued efforts toward its cost-saving program will likely keep overall expenses under control. Notably, management expects non-interest expenses to remain stable on a sequential basis.

Now, let’s have a look at what our quantitative model predicts:

According to our quantitative model, chances of PNC Financial beating the Zacks Consensus Estimate in the third quarter are low. This is because it does not have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better to increase the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for PNC Financial is -0.52%.

Zacks Rank: PNC Financial currently carries a Zacks Rank of 3.

Also, activities of the company in the to-be-reported quarter were not adequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of $2.73 has been revised marginally downward over the past seven days. Nonetheless, the figure reflects year-over-year improvement of 26.4%.

Stocks to Consider

Here are a few finance stocks that you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Comerica Incorporated (CMA - Free Report) is scheduled to release results on Oct 16. It has an Earnings ESP of +0.49% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation (MTB - Free Report) is slated to release results on Oct 17. It has an Earnings ESP of +0.39% and carries a Zacks Rank #3.

State Street Corporation (STT - Free Report) has an Earnings ESP of +0.25% and carries a Zacks Rank of 3. The company is also slated to release results on Oct 19.

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