PNC Financial Services: Loans And Revenues To Grow Faster Than Peers

| About: PNC Financial (PNC)

Diversified financial services provider PNC Financial Services Group (NYSE:PNC) is expected to witness faster loans and revenue growth at least until 2013 compared to its peers on account of a diverse stream of revenues that the company generates.

The Pittsburgh, Pennsylvania,-based company is predicted to witness 17.2 percent loan growth in 2012 driven by acquisitions and 6.5 percent in 2013 since it will focus less on commercial real estate lending, which is still facing rough weather due to previous excesses.

Approximately 80 percent of the loan portfolio is coming from commercial lending, consumer lending and lease financing. In terms of percentage, at the end of the second quarter, commercial lending consists of 43.7 percent, consumer lending accounted for 33.5 percent and lease financial represented 3.7 percent.

Interestingly, these three divisions have grown in the recent quarters and are well positioned to continue its uptick in the coming quarters. PNC can grow faster than its peers primarily due to less dependence on mortgage lending, which is facing torrid growth rates lately. PNC's 2012 total revenue is predicted to have only 2 percent of mortgage lending revenue.

Any possible slowdown in mortgage lending is likely to have less impact on PNC than on the likes of Wells Fargo (NYSE:WFC) or U.S. Bancorp (NYSE:USB) or BB&T (NYSE:BBT), which are likely to be exposed by 12.3 percent, 8.1 percent and 7.3 percent of 2012 revenues, respectively.

Looking at the loan portfolios of PNC, S&P Capital IQ analyst Erik Oja says, "We also see PNC's revenues as more diverse than these peers, with 7% to 8% (of expected 2012 total revenues) contributions from asset management, consumer services and corporate services."

PNC is also likely to benefit from improving credit quality and control over non-interest expenses, which run relatively higher as a result of a diverse stream of revenues since some of which costs higher. Erik Oja adds, "We forecast 2012 non-interest expenses at 73.0% of revenues, excluding unusual items, up from 69.1% in 2011. For 2013, we see expenses moderating to 71.0%, as legacy costs recede."

There is also an expectation that PNC's quality earnings are likely to be higher than most of its peers. S&P Capital IQ sees approximately 8 percent of PNC Financial's forward four quarters EPS coming from reserve releases. This is in contrast to 11 of PNC's closest 15 rivals' predicted to have 33 percent forward EPS coming from reserve releases ranging between 10.5 percent and 98.5 percent.

However, weaker-than-predicted economic recovery and lower credit quality could upset the calculations. PNC's acquisition of RBC Bank was recently closed and this is likely to detract the company's focus at least in the initial year.

Meanwhile, S&P Capital IQ predicts PNC to earn $5.46 a share on revenues of $15.177 billion for 2012, whereas the Street is expecting much higher earnings of $5.67 a share on revenues of $15.42 billion for the same period. The analyst also kept a 12-month price target of $66 with a reiteration of Buy rating.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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