On Aug 29, 2013, we reiterated our long-term recommendation on The PNC Financial Services Group, Inc. (PNC) at Neutral, based on its second-quarter earnings and expense reduction initiatives. However, stringent regulations and a slow economic recovery might act as deterrents to the company’s fundamentals.
PNC Financial reported second-quarter 2013 earnings of $1.99 per share, which outpaced the Zacks Consensus Estimate of $1.64. Moreover, this compared favorably with 98 cents earned in the prior-year quarter.
Better-than-expected results were aided by growth in non-interest income and a decline in operating expenses, partially offset by a fall in net interest income. Further, enhanced credit quality was another positive, but capital ratios were a mixed bag.
PNC Financial has been on an acquisition spree since 2008. The company completed the acquisition of National City in 2008 and the retail banking franchise of Flagstar Bank in 2011. Moreover, in Mar 2012, the company completed the purchase of RBC Bank (USA) and expanded its footprint in the Southeast markets.
Further, PNC Financial’s focus on expense control and efficient management has enabled it to offset continued investments in distribution channels. Moreover, PNC Financial’s strong balance sheet position and its ability to consistently pay dividend even during the financial crisis is expected to boost investors’ confidence in the stock.
However, a decline in net interest income and net interest margin due to reduced purchase accounting accretion and lower yields on loans and securities remain concerns. Additionally, the slow recovery of macroeconomic environment along with stricter regulatory requirements might restrict the company’s future expansion plans.
For PNC Financial, the Zacks Consensus Estimate for 2013 went up by 4.8% to $7.02 per share in the last 60 days. Moreover, for 2014, the Zacks Consensus Estimate went up by 0.9% to $6.95 per share over the same time frame. The company currently carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Some other banks that are performing well include BankUnited, Inc. (BKU), First Interstate Bancsystem Inc. (FIBK) and Firstbank Corp. (FBMI). All these carry a Zacks Rank #1 (Strong Buy).
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