What's in the Cards for PNC Financial (PNC) in Q2 Earnings?

PNC Financial PNC is scheduled to report second-quarter 2020 earnings, before the opening bell, on Jul 15. The company’s revenues and earnings are likely to have witnessed a year-over-year decline.

In the last reported quarter, its earnings surpassed the Zacks Consensus Estimate. A 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 has an impressive earnings surprise history. It surpassed the consensus estimate in each of the trailing four quarters, the average positive surprise being 12.5%.

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, the company’s activities in the to-be-reported quarter were inadequate to win analysts’ confidence. As a result, its Zacks Consensus Estimate for earnings of 98 cents has moved down 8.4% in the past seven days. Moreover, the figure indicates a 66% decline from the year-ago reported figure. The Zacks Consensus Estimate for sales is projected at $4.06 billion, suggesting a decline of 8.7% year over year.

Now let’s discuss the factors that are likely to have impacted the company’s second-quarter results:

Muted Net Interest Income Growth: The Fed slashed interest rates to near zero this March in order to shield the U.S. economy from the coronavirus outbreak-related mayhem. This is likely to have substantially hurt net interest margin and net interest income. However, low deposit costs might have been an offsetting factor for margins.

Per the Fed’s latest data, the loan balance is likely to have been supported by a rise in commercial & industrial (C&I) and commercial real estate on a sequential basis. However, a decline in demand for consumer loans in the quarter due to the virus outbreak might have played spoilsport.

The Zacks Consensus Estimate for average interest earning assets of $378.4 billion for the quarter indicates 6.5% sequential improvement. Overall, the consensus estimate for net interest income is projected at $2.52 billion, stable sequentially.

Notably, management expects average loans to rise in the high-single-digit range on a sequential basis in the second quarter and NII to remain stable.

Dismal Non-Interest Revenues: The quarter witnessed a rebound in the equity markets, resulting in most asset-management businesses recorded net inflows during the to-be-reported quarter. Thus, asset management fee is likely to have been positively impacted. However, the sale of the company’s investment in BlackRock might have been an offsetting factor.

Also, the Federal Reserve’s accommodative monetary policy and a decline in mortgage rates during the second quarter drove refinancing activities, while growth in new originations had been muted. Thus, these factors are expected to have supported PNC Financial’s mortgage banking fees in the to-be-reported quarter.

Strong equity markets resulted in a rise in follow-up equity issuances, while IPOs declined. Thus, equity underwriting fees are expected to have provided some support. Global M&A activity during the June-end quarter was significantly hampered amid the coronavirus outbreak, which might have hurt the company’s corporate services fees to an extent.

Also, lower consumer spending might have hurt card fees due to the pandemic during the quarter. The Zacks Consensus Estimate for consumer services revenues of $329 million indicates a decline of 12.7% from the prior-quarter reported number.

The Zacks Consensus Estimate for non-interest income is projected at $1.52 billion, suggesting a 24% decline sequentially. Notably, management expects a decline in fee income of 15-20%.

Moderate Decline in Expenses: The bank’s continued efforts toward cost savings might have been partially offset by its digital-expansion efforts. Notably, management expects non-interest expenses to remain flat or down slightly on a sequential basis during the period under discussion.

Higher Provisions: As PNC Financial is likely to have built loan loss reserves, owing to deterioration in the macro-economic backdrop, overall asset quality is expected to have deteriorated in the second quarter.

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

Our proven model shows that PNC Financial has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or better — to increase 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 +37.70%.

Zacks Rank: The company currently carries a Zacks Rank of 3.

Other Stocks That Warrant a Look

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

BancorpSouth Bank BXS is scheduled to release quarterly results on Jul 20. The company currently has an Earnings ESP of +1.09% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Bank of Hawaii Corporation BOH is scheduled to release results on Jul 27. The company has an Earnings ESP of +0.76% and a Zacks Rank of 3 at present.

BNY Mellon BK is slated to report quarterly earnings on Jul 15. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +0.46%.

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