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Can Fee Income Growth Aid PNC Financial’s (PNC) Q1 Earnings?


The PNC Financial Services Group PNC is scheduled to report first-quarter 2018 results on Apr 13, 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 loan growth. Also, the rising interest rates came as an added advantage for the bank.

Moreover, PNC Financial’s bottom line is expected to benefit from lower tax rates as it is likely to have retained a remarkable part of its revenues. Also, improved M&A and equity underwriting activities during the quarter are likely to drive fee income. The Zacks Consensus Estimate for revenues of $4.15 billion indicates a 6.8% year-over-year improvement.

Before we discuss the factors that might impact PNC Financial’s first-quarter results, let’s take a look at how the company performed in the prior quarter.

PNC Financial’s fourth-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, the company delivered positive earnings surprises in each of the trailing four quarters, with an impressive average beat of 4.1%.

The earnings beat translated into improved price performance. Over the past year, shares of PNC Financial have gained 32.7%, outperforming the 21.8% growth recorded by the industry.

Factors to Influence Q1 Results

Net Interest Income to Grow: PNC Financial might report higher interest income as the quarter continued to witness rise in interest rates and improvement in lending scenario.

The U.S. consumer sentiment reached its highest level since 2004 during the quarter along with the unemployment rate remaining at record low levels. Such factors are likely to have led to upbeat lending activities.

Also, the company’s net interest margin (NIM) is likely to expand with support from two rate hikes since December 2017. Per the Zacks Consensus Estimate, NIM is expected to expand 15 basis points to 2.92%, year over year.

Notably, the consensus estimate for net interest income is projected to be $2.34 billion, up 8.4% year over year.

Controlled Expenses: The company has a cost-saving program in place for the year to keep expenses under control. Also, management expects non-interest expenses to be down by low-single digits on a sequential basis.

Lower Mortgage Banking Revenues: The company is likely to continue witnessing lower revenues from this division owing to slowdown in refinancing activities caused by rising interest rates. Per the consensus estimate, residential mortgage revenues are likely to decline 9.7% to $102 million in the first quarter, on a year-over-year basis.

Non-Interest Income Might Rise: As the first quarter was decent in terms of investment banking and equity underwriting business due to higher volumes of M&As, the related fees are expected to increase marginally.

However, debt underwriting activities during the quarter were not encouraging, so the related fees are likely to remain muted.

Let’s have a look at what our quantitative model predicts:

Our proven model doesn’t conclusively show that PNC Financial will be able to beat the Zacks Consensus Estimate this time around, as it does not have the right combination of two key ingredients. Note that a stock with the combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or better has significantly higher chances of beating estimates.

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 0.00%.

Zacks Rank: PNC Financial carries a Zacks Rank of 3.

Nevertheless, with earnings estimates for the first quarter been revised slightly upward over the last 30 days, the company is expected to witness 23.5% year-over-year earnings growth.

Stocks to Consider

Here are a few finance stocks that you may want to consider, as these have the right combination of elements to post an earnings beat this quarter, according to our model.

Comerica Incorporated CMA is scheduled to release results on Apr 17. It has an Earnings ESP of +1.16% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BB&T Corporation BBT is slated to release results on Apr 19. It has an Earnings ESP of +1.37% and carries a Zacks Rank #3.

The Bank of New York Mellon Corporation BK has an Earnings ESP of +1.81% and carries a Zacks Rank of 3. The company is also slated to release results on Apr 19.

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