[Updated 06/29/2021] PNC Financial Update

Having gained close to 140% since the March 23 lows of last year, at the current price of $193 per share, we believe PNC Financial Services Stock (NYSE: PNC) is trading close to its near-term potential. PNC Financial has seen its stock rally from $81 to $193 off the 2020 March bottom compared to the S&P which moved around 90% – the stock is leading the broader markets and is trading 24% above its pre-Covid-19 peak in February 2020. That said, there is a mismatch between PNC’s stock and revenue growth. The company has reported negative growth in revenues over the recent quarters on a year-on-year basis – the top line has marginally declined to a consolidated figure of $16.8 billion for the last four quarters. However, its stock has gained 82% over the last twelve months. The impressive stock rise was driven by consecutive earnings beats over the last three quarters and an overall positive outlook toward U.S financial stocks. However, the market has corrected some of the stock value over the past few days.

PNC Financial is heavily dependent on its net interest income, which generates around 60% of its revenues. The same suffered in 2020 due to a lower interest rate environment, thanks to the zero rate policy of the Federal Reserve. Further, the trend continued in the first quarter of 2021, as well. On the flip side, the company posted some growth in its non-interest revenues in 2020, which continued in the first quarter, too. Moving forward, we expect the NII to continue to suffer in the current year, as interest rates are unlikely to recover to the pre-Covid-19 levels anytime soon. However, growth in non-interest income will likely spearhead the company’s revenue growth in the near term. Overall, PNC Financial’s revenues in FY2021 are unlikely to see a significant jump. Additionally, PNC Financial’s P/E multiple has changed from just below 11x in FY 2018 to around 9x in FY 2020. The company’s P/E stands just above 11x now, and we believe the figure is appropriate. Our dashboard Buy Or Fear PNC Financial Services Stock? provides the key numbers behind our thinking.

[Updated 06/02/2021] PNC Financial Services Stock Is Fully Valued

After around 143% gains since the March 23 lows of the last year, at the current price of $196 per share, we believe PNC Financial Services Stock (NYSE: PNC) is trading slightly above its near-term potential. PNC Financial, one of the largest diversified financial services institutions in the United States, has seen its stock rally from $81 to $196 off the 2020 March bottom compared to the S&P which moved around 90% – the stock is leading the broader markets by a huge margin and is trading 26% above its pre-Covid-19 peak. That said, the company has reported a slight drop in revenues over the recent quarters on a year-on-year basis – the top line has fallen 1% y-o-y to a consolidated figure of $16.8 billion for the last four quarters. However, PNC stock has gained 71% over the last twelve months. Hence, there is a mismatch between PNC’s stock growth and revenues. The meteoric stock rise was driven by consecutive earnings beats over the last three quarters and, in general, a positive outlook toward the financial stocks in FY2021 – PNC stock has gained 31% YTD.

PNC Financial’s stock has surpassed the level it was at before the drop in February 2020 due to the coronavirus outbreak becoming a pandemic. This seems to make it a little expensive as, in reality, revenues are unlikely to see significant growth as compared to the last year.

While the company’s total revenues rose around 4% from $16.2 billion in 2018 to about $16.9 billion in 2020, it translated into a 41% increase in the net income figure. The unusually high jump in the net income figure was due to an increase in net income from discontinued operations from $788 million to $4.55 billion – PNC divested its entire investment in BlackRock in the second quarter of 2020. Further, the profitability figures were negatively impacted by a considerable build-up in provisions for credit losses due to the impact of the Covid-19 crisis – from $408 million to $3.2 billion.

MORE FOR YOU

Although PNC’s revenue and earnings have grown over 2018-2020, its P/E multiple has decreased. We believe the stock is trading slightly above its near-term potential and has some scope for downside, after the recent rally and potential weakness from a recession-driven by the Covid outbreak. Our dashboard Buy Or Fear PNC Financial Services Stock? provides the key numbers behind our thinking.

PNC Financial’s P/E multiple has changed from just below 11x in FY 2018 to around 9x in FY 2020. While the company’s P/E is just below 12x now, there is some scope for a downside when the current P/E is compared to levels seen in the past years – P/E multiple of around 11x at the end of 2018.

So Where Is The Stock Headed?

PNC Financial reported total revenues of $16.9 billion in 2020, which was marginally higher than the year-ago figure. The company mainly has three business lines – retail banking, corporate and institutional banking, and asset management, and drives close to 60% of revenues from net interest income. The NII marginally decreased in 2020 due to a lower interest rate environment, partially offset by higher interest-earning assets. Further, the NII decreased by 6% y-o-y in the first quarter of FY2021 and is likely to suffer in the subsequent quarters as well. It is because low-interest rates are unlikely to see an immediate recovery to the pre-covid-19 levels. This will likely hinder the growth prospects of PNC’s topline in the year. That said, the non-interest income has posted some increase in the first quarter and is expected to drive revenues for the company. Overall, PNC Financial’s revenues in FY2021 are unlikely to see considerable growth. The stagnant growth in the PNC Financial revenues in the following quarters is likely to serve as a reality check for the investors, negatively impacting its stock price.

The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Israel. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on 2021 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.

Think Bitcoin could disrupt the banking industry? Looking for upside from Bitcoin adoption, without buying into the cryptocurrency itself? Check out our theme on Cryptocurrency Stocks

See all Trefis Featured Analyses and Download Trefis Data here

Read More