PNC's Stake In BlackRock A Solid Foundation For An Argus Upgrade
Argus said in a research note released on Monday, it likes the cost-reduction efforts and the stability provided by PNC Financial Services Group Inc (NYSE: PNC)'s large stake in BlackRock, Inc. (NYSE: BLK). The company holds about 34.6 million share or a 21 percent stake in BlackRock.
Higher Interest Rates To Benefit
Analyst Stephen Biggar noted that the company received cash dividends of $320 million in 2015 from its BlackRock stake. The analyst also believes the company is well positioned to benefit from rising interest rates.
Mitigating Weakness In Revenues
Argus noted that PNC Financial is benefiting from a range of strategic initiatives, strong capital levels and a high loan-to-deposit ratio. This, according to the firm, is despite revenue growth proving elusive in the lending business.
Q3, A Beat
The analyst noted that PNC Financial reported third-quarter earnings per share that declined year-over-year but beat its estimates. Net interest income as well as net interest margin rose slightly, the firm noted.
Q4 Guidance
Based on the fourth-quarter guidance outlined on the conference call, Argus noted that the company expects modest sequential loan growth for the fourth quarter, stable fees and non-interest expense growth in the low single digits. The company also sees a sequential drop in fourth quarter loan loss provision.
Valuation At Discount
Argus noted that PNC trades at 11.6 times its 2017 earnings per share estimate, below the 12.4 times for regional bank peers, including SunTrust Banks, Inc. (NYSE: STI), BB&T Corporation (NYSE: BBT) and U.S. Bancorp (NYSE: USB). However, given its 21 percent stake in BlackRock, the firm believes PNC's stock should trade at a premium to its peers.
Raising Estimates
Argus raised its 2016 earnings per share estimate for PNC Financial to $7.24 from $7.20, premising on better than expected third-quarter results. The firm also raised its 2017 earnings per share estimate to $7.61 from $7.54, on expectations of higher margins when interest rates rise.
As such, Argus raised its rating on PNC Financial to Buy from Hold, and upped its price target for the shares of PNC Financial to $98.
At last check, shares of PNC Financial were up 0.67 percent at $88.62.
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Latest Ratings for PNC
Oct 2016 | Argus Research | Upgrades | Hold | Buy |
Oct 2016 | Nomura | Downgrades | Buy | Neutral |
Oct 2016 | Raymond James | Upgrades | Underperform | Market Perform |
View More Analyst Ratings for PNC
View the Latest Analyst Ratings
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