PNC Financial share has reached its short-term potential – Trefis
[Updated 06/28/2021] PNC financial update
Having gained nearly 140% since the lows of March 23 of last year, at the current price of $ 193 per share, we believe PNC Financial Services actions (NYSE: PNC) is trading near its near term potential. PNC Financial saw its stock drop from $ 81 to $ 193 from the March 2020 low against the S&P which moved around 90% – the stock dominates broad markets and is trading 24% above from its pre-Covid-19 peak in February 2020. That said, there is a lag between growth in shares and PNC income. The company has experienced negative revenue growth in recent quarters on an annual basis – revenue edged down to a consolidated figure of $ 16.8 billion for the past four quarters. However, its stock has gained 82% over the past twelve months. The impressive rise in equities is due to back-to-back gains over the past three quarters and an overall positive outlook for US financial stocks. However, the market has corrected part of the value of the shares in the last few days.
PNC Financial is heavily dependent on its Net Interest Income (NII), which generates approximately 60% of its income. The same suffered in 2020 due to a lower interest rate environment, thanks to the Federal Reserve’s zero rate policy. In addition, the trend also continued in the first quarter of 2021. On the other hand, the company showed some growth in its non-interest income in 2020, which also continued in the first quarter. Going forward, we expect the NII to continue to suffer in the current year, as interest rates are unlikely to return to pre-Covid-19 levels anytime soon. However, growth in non-interest income is likely to spearhead the growth of the Company’s income in the near term. Overall, PNC Financial’s revenue for fiscal 2021 is unlikely to surge significantly. In addition, PNC Financial’s P / E multiple fell from just under 11x in fiscal 2018 to around 9x in fiscal 2020. The company’s P / E is now just below above 11x, and we think the figure is appropriate. Our dashboard Buy or fear PNC financial services shares? provides the key figures that underpin our thinking.
[Updated 06/02/2021] PNC Financial Services shares are fully valued
After gains of around 143% since the lows of March 23 of last year, at the current price of $ 196 per share, we believe PNC Financial Services actions (NYSE: PNC) is trading slightly above its near term potential. PNC Financial, one of the largest diversified financial services institutions in the United States, saw its stock drop from $ 81 to $ 196 from the March 2020 low against the S&P which moved around 90% – the stock dominates broad markets by a huge margin and is trading 26% above its pre-Covid-19 peak. That said, the company reported a slight decline in revenue in the past few quarters year-on-year – revenue fell 1% year-on-year to a consolidated figure of $ 16.8 billion for the four. last quarters. However, PNC stock has gained 71% over the past twelve months. Therefore, there is a mismatch between stock growth and PNC income. The meteoric rise in stocks was driven by back-to-back gains over the past three quarters and generally a positive outlook towards financial stocks in fiscal 2021 – PNC stock gained 31% over the fiscal year .
PNC Financial’s action has surpassed where it was before the February 2020 drop due to the transformation of the coronavirus epidemic into a pandemic. This seems to make it a bit pricey as, in reality, revenues are not expected to see any significant growth from last year.
As the company’s total revenue grew by around 4%, from $ 16.2 billion in 2018 to around $ 16.9 billion in 2020, this translated to a 41% increase in revenue. net business. The unusually large increase in net income is 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 Q2 2020. A considerable build-up of credit loss provisions due to the impact of the Covid-19 crisis – from $ 408 million to $ 3.2 billion .
Although PNC’s revenue and profit increased over the 2018-2020 period, its P / E multiple decreased. We believe the stock is trading slightly above its near-term potential and has some downside room, following the recent rally and potential weakness from a recession caused by the Covid outbreak. Our dashboard Buy or fear PNC financial services shares? provides the key figures that underpin our thinking.
PNC Financial’s P / E multiple fell from just under 11x in fiscal 2018 to around 9x in fiscal 2020. While the company’s P / E is just below 12x now there is some possibility of a downside when the current P / E is compared to levels seen in recent years – a P / E multiple of around 11x at the end of 2018.
So where is the stock going?
PNC Financial reported total revenue of $ 16.9 billion in 2020, which was slightly higher than last year. The company has three main activities: retail banking, corporate and institutional banking and asset management, and generates nearly 60% of its income on net interest income (NII). The NII declined slightly in 2020 due to a lower interest rate environment, partially offset by higher interest earning assets. In addition, the NII declined 6% year-on-year in the first quarter of fiscal 2021 and is expected to suffer in subsequent quarters as well. This is because low interest rates are unlikely to see an immediate recovery to pre-covid-19 levels. This will likely hamper PNC’s revenue growth prospects during the year. That said, non-interest income saw some increase in the first quarter and is expected to generate revenue for the company. Overall, PNC Financial’s revenue in fiscal 2021 is not expected to experience significant growth. PNC Financial’s stagnant revenue growth over the next few quarters should serve as a reality check for investors, which will negatively impact its share price.
The actual recovery and its timing depend on the wider containment of the spread of the coronavirus. Our dashboard Trends in Covid-19 cases in the United States provides insight into the spread of the pandemic in the United States and contrasts with trends in Israel. Following the stimulus from the Fed – which set a floor on fear – the market was willing to “look through” the current period of weakness and take a longer view. With investors focusing their attention on the 2021 results, valuations become important in finding value. Although market sentiment may be fickle, and evidence of a slight uptick in new cases could scare investors again.
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