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Can Fee Income Growth Aid PNC Financial's (PNC) Q1 Earnings?

Zacks Equity Research

The PNC Financial Services Group PNC is scheduled to report first-quarter 2019 results on Apr 12, before the opening bell. Its revenues and earnings are projected to grow year over year.

In the last reported quarter, the company’s earnings lagged the Zacks Consensus Estimate. Results reflected a fall in non-interest income and higher provisions, partially offset by improvement in net interest income and lower expenses.

Notably, PNC Financial’s earnings surprise history is impressive, having surpassed the consensus estimate in three of the trailing four quarters, the average beat being 2.1%.

The PNC Financial Services Group, Inc Price and EPS Surprise

The PNC Financial Services Group, Inc Price and EPS Surprise | The PNC Financial Services Group, Inc Quote

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

Factors at Play

Net Interest Income (NII) to Improve Modestly: Growth in Commercial and Industrial and consumer lending activities was witnessed during the first quarter, thus a support to NII is expected.

Also, the interest rate hike by the Federal Reserve in December 2018 is likely to have a full-quarter impact and should ease some margin pressure, while flattening of yield curve will likely hurt somewhat.  

Management expects NII to remain stable on a sequential basis.

Given the improvement in the loans and margins, the Zacks Consensus Estimate of $2.44 billion for NII projects 3.5% year-over-year rise.

Non-Interest Income Might Rise: With continued rise in interest rates, a slowdown in refinancing activities and mortgage originations was witnessed during the quarter. Thus, the consensus estimate of $78 million for residential mortgage revenues reflects a decline of 19.6%.

Decline in global M&A deals due to concerns of economic slowdown and no-deal Brexit will likely hurt the company’s corporate services fees, while interest rate spread expansion on deposit balances might result in higher treasury management revenues. Thus, consensus estimate for corporate services revenues for the first quarter is $443 million, reflecting an improvement of 3.3% year over year.

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 $372 million reflects growth of 4.2% year over year. Also, service charges on deposits are projected to jump 4.2% to $174 million due to an increase in consumer spending.

The consensus estimate for non-interest income is $1.8 billion, indicating 2.7% growth on a year-over-year basis.

Moderate Rise in Expenses: The company’s continued efforts toward its cost-saving might be partially offset by its digital expansion efforts. Notably, management expects non-interest expenses to remain flat 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 first 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 -0.43%.

Zacks Rank: PNC Financial currently carries a Zacks Rank of 3. which increases the predictive power of ESP. But we need to have positive Earnings ESP to be sure of an earnings beat.

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 $2.59 has been revised downward over the past 30 days. Nonetheless, the figure reflects year-over-year improvement of 6.6%.

Stocks to Consider

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.

Comerica Incorporated CMA is scheduled to release results on Apr 16. It has an Earnings ESP of +0.52% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Bank of New York Mellon Corporation BK is scheduled to release results on Apr 17. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.17%.

The Earnings ESP for BankUnited, Inc. BKU is +1.89% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Apr 24.

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