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Why Earnings Beat is Likely for PNC Financial (PNC) in Q4

Zacks

The PNC Financial Services Group PNC is scheduled to report fourth-quarter and 2017 results on Jan 12, before the opening bell. Its revenues and earnings are projected to grow year over year.

Organic growth remains a key strength for PNC Financial. The quarter witnessed a rise in consumer confidence, which led to growth in consumer loan portfolio. Also, the rising interest rates came as an added advantage for the bank. Though, flatter yield curves offset the benefits to some extent, pressure on PNC Financial’s net interest margin is likely to ease slightly from the three rate hikes in 2017.

Moreover, President Trump’s success in executing the tax overhaul boosted the stock market during the quarter, which would greatly support PNC Financial’s fee income. The Zacks Consensus Estimate for revenues of $4.17 billion indicates a 7.6% year-over-year improvement for the to-be-reported quarter.

Before we discuss why an earnings beat might also be in store, let’s take a look at how the company performed in the prior quarter.


PNC Financial’s third-quarter 2017 results improved primarily due to growth in loan balances and higher fee income. These factors also helped it in beating the Zacks Consensus Estimate. However, the positives were partially offset by higher expenses and provision for loan losses.

Notably, PNC Financial delivered positive earnings surprises in each of the trailing four quarters, with an impressive average beat of 4.6%.

The earnings beat translated into improved price performance. Over the past year, shares of PNC Financial have gained 21.8%, outperforming the 18.8% growth recorded by the industry.

Will the upcoming earnings release give a boost to PNC Financial’s stock? This depends largely on whether the firm is able to deliver a positive earnings surprise.

Here’s what our quantitative model predicts:

According to our quantitative model, chances of PNC Financial beating the Zacks Consensus Estimate in the to-be-reported quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — which is required to be confident of an earnings surprise call.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: The Earnings ESP for PNC Financial is +0.55%.

Zacks Rank: PNC Financial currently carries a Zacks Rank #2 (Buy), which when combined with a positive ESP, increases the chances of an earnings beat.

Though, earnings estimates for the fourth quarter and full-year 2017 have been revised slightly downward over the past 30 days, they reflect year-over-year growth of 11.7% and 15.5%, respectively.

Factors to Influence Q4 Results

Net Interest Income to Grow: In addition to higher interest rates, moderate improvement in lending, mostly in the consumer front, is likely to perk up interest income. Notably, the Zacks Consensus Estimate for net interest income is projected to be $2.39 billion, up 12.1% year over year.

Management expects its net interest income for the to-be-reported quarter to increase in low-single digits on a sequential basis.

Controlled Expenses: The company had a cost-saving program in place during the year to keep expenses under control. However, these efforts are likely to be partially offset by one-time restructuring expenses due to the tax reform.

Muted Non-Interest Income: The fourth quarter was exceptionally good for the investment banking and underwriting business, which might support the company’s fee income.

On the other hand, with overall low volumes of M&A during the quarter, the related fees are expected to be lower. Per the consensus estimate, total non-interest income is expected to be $1.75 billion, slightly up year over year.

Other Stocks to Consider

Here are some other 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.

BB&T Corporation BBT has an Earnings ESP of +0.15% and a Zacks Rank of 2. It is slated to report fourth-quarter and 2017 results on Jan 18. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

State Street Corporation STT Earnings ESP is +0.34% and it carries a Zacks Rank of 2. The company is expected to release fourth-quarter and 2017 results on Jan 23.

SunTrust Banks STI has an Earnings ESP of +0.72% and a Zacks Rank #1. It is scheduled to report results on Jan 19.

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