PNC Financial: Performance Outweighs Marginal Risks

May.30.13 | About: PNC Financial (PNC)

The PNC Financial Services Group, Inc. (NYSE:PNC) is a financial service company with a market capitalization of $37.65 Billion. It is engaged in retail banking, corporate and institutional banking, asset management, and residential mortgage banking, providing these products and services nationally. There are also financial products of PNC that are specific to Pennsylvania, Ohio, New Jersey, Michigan, Illinois, Maryland, Indiana, Kentucky, Florida, Washington, D.C., Delaware, Virginia, Missouri, Wisconsin, and Georgia. It also provides some products and services internationally.

PNC has been charming analysts lately with its numbers. Research analysts at S&P Equity Research lifted their target price on shares of PNC Financial Services from $70.00 to $73.00 in a report released this month, according to Analyst Ratings.Net. The firm currently has a "buy" rating on the stock.

PNC Financial Services has a 52-week low of $53.36 and a 52-week high of $67.89. The stock's 50-day exponential moving average is currently $67.87. The price-to-earnings ratio is around 12.63.

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For the first quarter of 2013, the company reported $1.76 of earnings per share. That beat the analysts' consensus estimate of $1.57 by $0.19. The company had revenue of $3.96 billion for the quarter, compared with the consensus estimate of $3.98 billion. The company posted $1.44 earnings per share during the same quarter of last year. It seems that the analysts expect that PNC Financial Services will post $6.66 EPS for the current fiscal year.

The stock has also caught the eye of other analysts. Guggenheim raised its price target on shares of PNC Financial Services from $79.00 to $82.00 in a research note to investors earlier this month. Analystratings.net reports that it has since raised this target to $85.50 recently. As of now it has a "buy" rating on the stock.

Its analysts weren't the only ones to get jiggy with PNC. Analysts at Oppenheimer raised their price target from $72.00 to $78.00 in a research note to investors recently. They now have an "outperform" rating on the stock.

Continuing this recent analyst activity in PNC, but ending up in a different direction, the analysts at SunTrust reiterated a "neutral" rating on shares of PNC in a research note to investors. SunTrust now has a $67.00 price target on the stock.

In contrast, analysts at TheStreet reiterated a "buy" rating they had previously determined for the shares of PNC Financial Services in a research note they sent to clients.

It should be noted that shares of PNC set a new 52-week high, touching $70.40 in the second half of the trading session on May 14. Zacks Equity Research said about this event: "Despite hitting its 52-week high, this Zacks Rank No. 3 (Hold) stock has plenty of upside left given its strong estimate revisions over the last 30 days and expected year-over-year earnings growth of 6.5% for 2013."

In summation, one equities research analyst has rated the stock with a sell rating, 11 have issued a hold rating, 11 have assigned a buy rating and one has given a strong buy rating to the company.

PNC's core business may be changing, just like circumstances of today are changing the business model of most banks. PNC will have to answer some tough questions like: How will the bank replace the roughly $12 billion in annual revenues that are now lost to recent regulations and settlements that will limit overdraft and debit card fees? How much money should it spend building "bricks and mortar" branches that are becoming increasingly obsolete as online banking replaces the ritual of going up to a human teller? How much risk should the banks take lending in the new and emerging markets or to new customer groups as long as the overall economy remains slow? There are no easy answers to these kinds of questions. But the answers and the execution of them will create the financial players of the future.

American Banker reported what the CEO of PNC had to say on the subject: "The fundamental model of what is consumer banking has really changed," said Bill Demchak. "We all went into the crisis and we spent five years kind of in the bunker, rebuilding and figuring out how to survive... but the world didn't stop while we were dealing with our balance sheets and recovering loans. Internally you talk a lot about it."

Now, PNC addressed the short-term growth issue by buying Royal Bank of Canada's U.S. retail operations. That gives it a nice one-off growth shot in the arm, but does not fix underlying issues facing the entire banking industry, Demchak and his PNC team are focused on the problem of how to extract more revenue from customers who now pay less in penalty fees and who expect most of their basic banking services to be free by default.

PNC, which has its headquarters in Pittsburgh, PA, is the only major bank located in Appalachia, which is a region of the United States with significant coal and gas extraction activities. PNC provides financial services to the mining companies, including those engaged in mountaintop removal, a practice that has been blamed for adverse environmental impacts. At the same time, PNC also displays to the public an environmentally friendly image, which is the goal of its latest corporate tower and its "green" building program; which provides loans for solar projects, and environmental incentives for small businesses. This led to a recent shareholder resolution about PNC's activity in the area, and whether or not the greenhouse gas emissions resulting from them were a potential risk that could affect business operations and performance. Though the resolution was not approved, it still indicates the kind of challenges that face PNC because of the specific businesses it is involved in.

Despite the many challenges facing the banking sector in general PNC seems to be staying ahead of the game in generating positive returns for shareholders and the benefits of adding to your portfolio seem to far outweigh the marginal risks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.