The PNC Financial Services Group, Inc. (PNC) is set to unveil its fiscal 2023 fourth quarter financial results on January 16. Analysts predict an 8.1% year-over-year revenue decline to $5.29 billion. Furthermore, the company's EPS is projected to decrease by 22.5% from the corresponding period last year, reaching $2.71.

In October of last year, PNC reported that it was trimming 4% of its workforce and revealed a third-quarter profit dip. Despite increased interest from assets, rising funding costs negated gains. The bank forecasts a 1-2% drop in Net Interest Income (NII) in the fourth quarter, with a 3% sequential NII decline in the third quarter.

The third-quarter NII decline, coupled with the forecasted drop in the fourth quarter, signals concerning trends for the bank's financial performance, reflecting potential hurdles in sustaining profitability amid evolving market conditions.

Moreover, PNC faced a setback with the departure of Zachary Fiandt, a seasoned advisor managing $260 million in assets for PNC Private Trust Bank, who has chosen to join LPL Financial Holdings Inc. (LPLA). Fiandt's exit could suggest a potential loss of both valuable expertise and assets.

His explicit preference for LPLA, citing its flexibility and autonomy, underscores the pressing need for PNC to reevaluate its strategies, ensuring it can retain top-tier talent and adapt to evolving industry dynamics.

In addition, PNC has agreed to a $6.1 million settlement to resolve an ERISA complaint filed by current and former participants in a 401(k) plan. An ERISA complaint is a formal legal action brought against someone who breaches the Employee Retirement Income Security Act (ERISA).

PNC, as the successor to the original defendant, BBVA Compass Bancshares, is addressing allegations from July 2019. Plaintiffs claimed ERISA violations, asserting that the bank and its fiduciaries breached their duties by offering high-cost investments when lower-cost alternatives were available and opting for a money market fund instead of a higher-yield capital preservation investment.

Shares of PNC have plummeted 4.1% over the past five days and 11.8% over the past year to close the last trading session at $148.92.

Here are the financial aspects of PNC that could influence its performance in the near term:

Weak Financials

For the fiscal 2023 third quarter that ended September 30, 2023, PNC’s total revenue decreased 5.7% year-over-year to $5.23 billion. Its net income and net income per common share declined 4.3% and 4.8% from the prior year’s period to $1.57 billion and $3.60, respectively.

As of September 30, 2023, PNC’s assets amounted to $557.33 billion, down from $559.48 billion as of September 30, 2022.

Unoptimistic Analyst Estimates

The consensus revenue estimate of $21.43 billion for the fiscal year ending December 2024 indicates a marginal year-over-year decline. Likewise, the consensus EPS estimate of $12.50 for the ongoing period exhibits an 8.9% decline from the prior year.

Poor Historical Growth

Over the past three years, PNC’s net income and EPS decreased at a CAGR of 10% and 9.3%, respectively. In addition, the company’s tangible book value and common equity declined at respective CAGRs of 8.3% and 5.3%.

Mixed Valuation

In terms of trailing-12-month PEG, PNC is trading at 1.21x, 220.6% higher than the industry average of 0.38x. Moreover, its trailing-12-month Price/Sales of 2.86x is 8.5% higher than the 2.63x industry average. However, the stock’s trailing-12-month Price/Cash Flow of 6.38x is 14.9% lower than the 7.50x industry average.

POWR Ratings Exhibit Bleak Prospects

PNC’s weak outlook is apparent in its POWR Ratings. The stock has an overall rating of D, which translates to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. PNC has a D grade for Growth, which is reflected in its poor financial performance in the latest quarter. In addition, the stock also has a C grade for Stability, evidenced by its 24-month beta of 1.21.

The stock is ranked #9 out of 10 stocks in the F-rated Money Center Banks industry. Click here to access PNC’s Value, Momentum, Sentiment, and Quality ratings.

Bottom Line

PNC is facing challenges to its expansion, hampered by the departure of a key advisor and a $6.1 million settlement for alleged ERISA violations. Furthermore, given PNC's current financial frailty, limited stability, and mixed valuation, it could be wise to steer clear of PNC at this juncture.

How Does The PNC Financial Services Group, Inc. (PNC) Stack Up Against Its Peers?

While PNC has an overall grade of D, equating to a Sell rating, you may check out these other B (Buy) stocks within the Foreign Banks industry: Erste Group Bank AG (EBKDY), Banco Santander, S.A. (SAN), and Banco do Brasil S.A. (BDORY). To explore more Foreign Banks stocks, click here. 

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PNC shares were trading at $148.92 per share on Monday morning, down $3.62 (-2.37%). Year-to-date, PNC has declined -2.84%, versus a 0.29% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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