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PNC Financial Depicts Cost-Control Efforts: Should You Hold?

Zacks Equity Research

On Dec 1, we issued an updated research report on The PNC Financial Services Group, Inc. PNC. The company has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 4.58%.

Further, shares of this Pennsylvania-based banking giant have recorded a year-to-date return of 20.6% compared with 15.6% growth recorded by the industry.

We believe this growth story has been aided by the company’s cost-containment efforts to drive operational efficiency. Also, it continues to benefit from steady loan and deposit growth, along with higher fee income, and continues to enhance shareholder value with dividend and buybacks.

We believe PNC Financial is well positioned to drive operational efficiency through its cost effective measures. Management successfully realized its 2015 and 2016 continuous improvement savings program ('CIP') goals of $500 million and $400 million, respectively. For 2017, management anticipates CIP target of $350 million. The company's continued focus on core expense management will 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. With the gradual change in the rate environment, margin pressure for the bank has eased. Further, the company’s fee income depicted upward movement, with growth of 5.6% year over year in the first nine months of 2017.

Additionally, backed by a strong capital position, the company remains committed to enhance shareholder value. Following the Federal Reserve's approval of its 2017 capital plan, the company announced a 36% hike in its quarterly dividend in July 2017. The capital plan also includes a new share repurchase authorization to buy back shares worth nearly $2.7 billion. However, unfavorable debt/equity ratio compared with the broader industry and the volatile performance in the past few quarters might not aid capital-deployment activities to be sustainable.

Over the past 30 days, the Zacks Consensus Estimate moved up slightly to $8.44 per share for 2017, while the same remained unchanged at $9.32 for 2018. Hence, PNC Financial carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Federated Investors, Inc. FII has been witnessing upward estimate revisions for the past 30 days. In a year’s time, the company’s share price has been up more than 19%. It also sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Enterprise Financial Services Corporation EFSC has been witnessing upward estimate revisions for the last two months. Additionally, the stock jumped more than 13% over the past year. It currently carries a Zacks Rank of 2 (Buy).

First Financial Bancorp FFBC has been witnessing upward estimate revisions for the past month. Also, the company’s shares have risen nearly 3% in a year’s time. It holds a Zacks Rank of 2, at present.

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