PNC Stock Analysis: PNC Financial Services Can Be the Winner
I have strong fundamental reasons for this Finance Stock.
PNC Financial Services Group is one of the best-positioned regional banks in the U.S. It has the scale to compete with industry leaders like Bank of America and JPMorgan Chase but isn’t burdened with the stiff capital requirements of the banking giants.
With the acquisition of the U.S. banking operations of Spain’s BBVA, PNC now has a presence in all of the top 30 markets in the U.S., including St. Louis.
PNC’s second-quarter earnings rose 30% from a year ago, to $3.42 a share. Revenue was up 10% while noninterest costs increased 6%, resulting in favorable operating leverage. Like its peers, PNC is seeing an expansion in net interest margins as the Federal Reserve lifts short rates and credit costs remain historically low. Loan growth was healthy at 5% in the second quarter, and the bank sees 8% growth for the year.
Next year’s earnings are expected to rise 14%, to about $16.50 a share, as margins widen further, even as PNC potentially absorbs higher credit costs.
“PNC has the scale to compete with the biggest banks, but has developed a strong lending niche with middle-market companies across the country and a strong retail banking offering,” says Jason Goldberg, a banking analyst at Barclays.
PNC Bank announced on August 16th, a new partnership with NCR Corporation and its Allpoint ATM network, providing customers with surcharge-free access to cash through more than 41,000 machines across the United States, including Hawaii and Alaska. PNC customers now have surcharge-free access to nearly 60,000 PNC Bank and PNC partner ATMs across the country.
It is obvious that the banking industry is seeing the best commercial loan growth in 15 years. That’s PNC’s bread and butter. PNC is showing expense control and still-strong credit quality.
With $541 billion in assets, PNC is in the same league as rivals U.S. Bancorp (USB) and Truist Financial (TFC), but well below the big four banks—JPMorgan (JPM), Bank of America (BAC), Citigroup (C), and Wells Fargo (WFC)—each in the range of $2 to $4 trillion in assets.
“Regulators have imposed higher capital burdens on the biggest banks, deeming them global systemically important banks, or G-SIBs. That limits their ability to repurchase stock. JPMorgan is now subject to a minimum Tier 1 capital ratio of 11.2%. PNC faces a 7.4% minimum capital ratio and its 9.6% second-quarter ratio comfortably exceeds that.
That gives PNC the ability to pay an ample dividend and repurchase a sizable amount of stock. The bank is on pace to buy back more than $3 billion of stock this year, about 4% of its market value, and return nearly all its earnings to holders in dividends and share repurchases.
The big risk for banks is a recession, and fears of one have depressed the stocks this year. PNC is prepared to deal with a downturn, having comfortably passed the Fed’s stress test that simulates a severe economic recession.
Demchak wasn’t available for comment. On the bank’s conference call last month, he said the Fed’s moves to control inflation would be harder to achieve and take longer than many in the markets were assuming. “But regardless of the path ahead macroeconomically, we believe having a strong balance sheet, a solid mix of fee-based businesses, continued focus on expense management, and differentiated strategies for organic growth will continue to provide the foundation for our success,” the CEO said.
Given its large asset base and market value of $71 billion, PNC is unlikely to become a takeover candidate, especially in view of the tough antitrust approach taken by the Biden administration. If a deal were possible, Goldman Sachs Group (GS) might be interested. PNC would beef up its consumer and corporate banking businesses.”
As Cycle Sniper showed a potential minor retracement at 177.-USD, we predict a bullish continuation very soon.
The market is focused on the FED’s rate hike policies. Jackson Hole symposium will tell us more about it. However, the banking sector is likely to remain stronger.
158.-USD seems to be strong support for the Stock and can be used as a buying opportunity.
Daily closing above 177.-USD will confirm the new bullish run and our target will be 194.- USD and 220.-USD
Sources: Barrons.com, Yahoo Finance
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