PNC Stock Has Soared 20% Since Earnings, Can the Run Continue?

A month has gone by since the last earnings report for PNC Financial Services (PNC). Shares have added about 20.46 % in the past month, easily outperforming the S&P 500 in that time frame.

Will the recent positive trend continue leading up to their next earnings release, or is the stock due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Recent Earnings

 

PNC Financial Tops Q3 Earnings, Expenses High

PNC Financial’s third-quarter 2016 earnings per share of $1.84 handily beat the Zacks Consensus Estimate of $1.78. However, the bottom line declined 3% year over year.

Better-than-expected results were aided by increased net interest income as well as non-interest income. Also, continued growth in loans and deposits were among other positives.  However, on the downside, the quarter recorded higher expenses and provisions.

The company reported net income of $1.01 billion in the reported quarter, down 6% year over year.

Segment-wise, on a year-over-year basis, the quarterly net income in Corporate & Institutional Banking and Asset Management improved 7% and 32%, respectively. Residential Mortgage Banking recorded a net income as against net loss in the prior-year quarter. However, net income in Retail Banking, Non-Strategic Assets Portfolio and Other, including BlackRock segments, plunged 11%, 21%, 48% and 43%, respectively.



Improved Revenues, Costs and Provisions High

Total revenue for the quarter came in at $3.83 billion, increasing 1% year over year. The reported figure was almost at par with the Zacks Consensus Estimate.

Net interest income (NII) inched up 1% year over year to $2.10 billion due to rise in core net interest income, partially offset by reduced purchase accounting accretion. Further, net interest margin (NIM) expanded 1 basis point year over year to 2.68%.

Non-interest income was up 1% year over year to $1.73 billion. The rise was driven by several fee income categories, including residential mortgage, asset management, consumer services and service charges on deposits. However, this growth was partially offset by lower other income, including net securities gains.

PNC Financial’s non-interest expense was $2.39 billion, up 2% from the prior-year quarter. The quarter witnessed rise in marketing, personnel, occupancy and equipment-related expenses.

As of Sep 30, 2016, total loans were up 3% to $210.4 billion, supported by commercial lending. Also, total deposits grew 6% year over year to $259.9 billion.
 

Share Repurchase

In third-quarter 2016, PNC Financial repurchased 5.9 million common shares for $0.5 billion.

Outlook

Fourth-Quarter 2016

PNC Financial’s NII is expected to remain stable sequentially in fourth-quarter 2016. Also, fee income is expected to remain stable on a sequential basis.

Non-interest expense is projected to rise sequentially by low-single digits due to seasonally higher expenses and continued investments. Further, loan loss provision is estimated within $75–$125 million.

Period-end loans are projected to rise modestly during the quarter.

 

How have estimates been moving since then?

Following the release, and in the last month, investors have witnessed an upward trend for fresh estimates. There have been six revisions higher for the current quarter, while there have been zeros moves lower in the past month, and only two moves down in the last two months.

 

PNC FINL SVC CP 12 Month EPS

PNC FINL SVC CP 12 Month EPS | PNC FINL SVC CP Quote

 

VGM Scores

At this time, PNC Financial Services' stock has a weak Growth score of 'F', due in part to a poor historical cash flow growth level of about 3.99%, However, the stock was allocated a grade of 'C' on the value side, putting it in the third quintile for this investment strategy.  The company also has a so-so outlook on the momentum front, including a 'C' grade, though PNC does have good earnings estimate momentum which includes rising estimates, while it has outpaced the industry from a four week and 12 week price change look too.

These metrics combine to give PNC stock a VGM score of 'F', so there are definitely better choices out there for investors from a fundamental perspective. 

Outlook

Overall, though estimates have been trending upward for the stock, the magnitude of these revisions looks promising. Interestingly, shares of PNC Financial Services have a Zacks Rank # 3 (hold), so we are just expecting an in-line market performance over the next few months from the company, though rising rates and shifting estimates could definitely change this outlook before the next report.  

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