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PNC Financial's (PNC) Q4 Earnings: Disappointment in Store?

Zacks Equity Research

The PNC Financial Services Group PNC is scheduled to report fourth quarter and 2018 results on Jan 16, 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 surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 3.3%.

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 PNC Financial’s fourth-quarter results.

Factors to Impact Q4 Results

Net Interest Income (NII) to Improve: Commercial and Industrial, consumer and commercial real estate lending activities were decent during the fourth quarter, thus a support to PNC Financial’s NII is expected. Also, the company’s Zacks Consensus Estimate for average interest-earning assets of $332.3 billion for the to-be-reported quarter reflects growth of nearly 1% year over year.

Further, net interest margin is likely to benefit from the rising interest rates, while flattening of yield curve will likely somewhat hurt. Thus, given the improvement in the loans, 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 fourth quarter is $2.5 billion, which reflects an improvement of 6.3% year over year.

Non-Interest Income Might Fall: Performance of the equity markets was not very impressive during the quarter. Thus, the company’s asset management revenues are expected to decline 32.8% to $484 million, year over year.

Further, with continued rise in interest rates, a slowdown in refinancing activities and mortgage originations was witnessed during the quarter. Thus, residential mortgage revenues are also expected to remain lower.

Also, decline in global M&A deals in the fourth quarter will likely hurt the company’s corporate services fees marginally.

Nonetheless, 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 $384 million reflects growth of 4.9% year over year.

With fall in almost all components of fee income, total non-interest income is expected to reflect a decline. The Zacks Consensus Estimate for non-interest income is $1.89 billion, indicating 1.3% fall on a year-over-year basis.

Moderate Rise in Expenses: The company’s continued efforts toward its cost-saving program to keep expenses under control might be partially offset by its digital expansion efforts. Notably, management expects non-interest expenses to increase in low-single digits 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 fourth 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 -0.20%.

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 $2.77 has been revised marginally downward over the past seven days. Nonetheless, the figure reflects year-over-year improvement of 21%.

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.

U.S. Bancorp USB is slated to release results on Jan 16. It has an Earnings ESP of +0.26% and currently carries 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 is scheduled to release results on Jan 17. It has an Earnings ESP of +0.80% and a Zacks Rank #3.

Zions Bancorporation ZION has an Earnings ESP of +0.75% and it currently carries a Zacks Rank of 3. The company is slated to release results on Jan 22.

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