We expect The PNC Financial Services Group, Inc. (PNC) to beat earnings expectations when it reports fourth-quarter and full year 2014 results on Friday, Jan 16, before market opens.
While management noted in its third-quarter conference call that it sees an overall challenging environment for revenue generation in the following quarters, we believe PNC Financial is likely to deliver another positive earning surprise in its upcoming release, similar to the prior three quarters of 2014.
Why a Likely Positive Surprise?
Our proven model shows that PNC Financial has the right combination of two key ingredients to beat earnings.
Positive Zacks ESP: The Earnings ESP , which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, stands at +1.15%. This is a very meaningful and leading indicator of a likely positive earnings surprise for the company.
Zacks Rank: PNC Financial carries a Zacks Rank #3. Note that stocks with a Zacks Ranks #1 (Strong Buy), 2 (Buy) and 3 (Hold) have a significantly higher chance of beating earnings. The Sell-rated stocks (#4 and 5) should never be considered going into an earnings announcement.
The combination of PNC Financial’s Zacks Rank #3 and ESP of +1.15% makes us confident of an earnings beat on Jan 16.
What Management Expects?
For fourth-quarter 2014, fee income is expected to remain flat sequentially as seasonal growth and increased business activity are anticipated to be almost equal to the high merger and acquisition (M&A) advisory fees recorded in third-quarter 2014.
Given the current trend in credit quality, management anticipates provision for loan losses in the quarter to be in the range of $25–$75 million. As provision for loan losses has been exhibiting a declining trend for the last several quarters, we believe the fourth quarter will be no different and thereby will support the company’s profitability.
Among others factors, loan growth could act as a positive. Management projects modest loan growth in the quarter, mainly in the commercial portfolio.
Further, management expects to achieve savings from its continuous improvement savings pogramme (CIP) in the fourth quarter. Notably, the company achieved full-year 2014 CIP target of $500 million by the end of third-quarter 2014.
However, certain issues may affect the results. The anticipated savings from CIP in the fourth quarter are expected to be more than offset by increased non-interest expenses, which are expected to rise by the low single-digits owing to seasonality and continued investments in business and infrastructure.
Another dampener for the quarter may be lower net interest income. For the quarter, management anticipates a slight decline in net interest income, primarily due to persistent decrease in purchase accounting as well as continued spread compression.
Given the higher-than-expected cash recoveries in the third quarter, purchase accounting accretion is expected to be down $275 million for 2014.
Activities of PNC Financial during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined slightly to $1.74 per share over the last seven days.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Associated Banc-Corp (ASB) has an Earnings ESP of +3.33% and it carries a Zacks Rank #3. The company is scheduled to release results on Jan 22.
BancorpSouth, Inc. (BXS) has an Earnings ESP of +3.23% and carries a Zacks Rank #2. It is scheduled to report results on Jan 21.
BOK Financial Corporation (BOKF) has an Earnings ESP of +0.94% and a Zacks Rank #3. It is slated to report results on Jan 28.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment