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Will Soft Lending Hurt PNC Financial (PNC) in Q3 Earnings?

Zacks Equity Research

The PNC Financial Services Group PNC is scheduled to report third-quarter 2019 results on Oct 16, before the opening bell. While the company’s revenues are expected to have grown year over year, earnings might have declined.

In the last reported quarter, the company’s earnings surpassed the Zacks Consensus Estimate. Rise in revenues, driven by higher net interest income and escalating fee income, aided the results. However, higher costs and provisions were headwinds.

Notably, PNC Financial’s earnings surprise history is impressive. It surpassed the consensus estimate in three of the trailing four quarters, the average beat being 1.3%.

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 price-eps-surprise | The PNC Financial Services Group, Inc Quote

Nonetheless, activities of the company in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of $2.80 has been revised downward over the past 30 days. Also, it reflects slight decline from the year-ago reported figure.

Now let’s discuss the factors that are likely to impact the company’s third-quarter results:

Soft Net Interest Income (NII) Growth: The lending scenario during the third quarter, particularly in Commercial and Industrial, and Real Estate front was disappointing. Hence, interest income growth is likely to have remained muted.

Also, decline in interest rates and flattening of the yield curve might have impacted margins. However, the Zacks Consensus Estimate for average interest earning assets of $348.5 billion for the quarter indicates improvement of 5.5% year over year.

The consensus estimate of $2.48 billion for NII suggests slight year-over-year rise.

Slight Growth in Non-Interest Income: Pickup in refinancing activities on the back of lower mortgage rates during the quarter is likely to have supported PNC Financial’s fee income. Thus, the consensus estimate of $95 million for residential mortgage revenues projects a rise of 25%.

Given the decent demand for credit and debit cards, PNC Financial’s consumer services revenues might have shown improvement. The Zacks Consensus Estimate for consumer services revenues of $397 million indicates growth of 5.3% from the year-ago reported number.

However, decline in global M&A deals due to concerns of global economic slowdown and uncertainty related to the U.S.-China trade war might have hurt the company’s corporate services fees.

The consensus estimate for non-interest income is $1.93 billion, indicating 1.8% rise.

Moderate Rise in Expenses: The company’s continued efforts toward cost savings might have been partially offset by its digital expansion efforts. Notably, management expects non-interest expenses to have remained stable on a sequential basis.

Now, let’s have a look at what our quantitative model predicts:

The chances of PNC Financial beating the Zacks Consensus Estimate in the third quarter are less. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing 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 -0.71%.

Zacks Rank: PNC Financial currently has a Zacks Rank #3. This increases the predictive power of ESP but we need to have positive ESP to be sure of an earnings beat.

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.

The Earnings ESP for BancorpSouth Bank BXS is +2.61% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 21.

Citigroup C is scheduled to release results on Oct 15. The company has an Earnings ESP of +0.55% and 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 Oct 17. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.34%.

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