On Wednesday, Evercore ISI adjusted its outlook on PNC Financial (NYSE:PNC) shares, reducing the bank's price target to $175 from the previous $184, while retaining an Outperform rating.
The adjustment follows PNC's first-quarter results for 2024, which prompted a revision of the bank's earnings per share (EPS) projections. The revised 2024 EPS is now set at $12.42, up from $12.19, with the 2025 EPS estimate remaining steady at $14.48.
The modification in the EPS forecast reflects a $0.34 per share beat in the first quarter of 2024, balanced by a slight downward revision to the pre-provision net revenue (PPNR) outlook for the second to fourth quarters, primarily in fee-based income.
Despite anticipating fewer Federal Reserve rate cuts than previously expected—two in 2024 and two in 2025—Evercore ISI's net interest income (NII) forecast stays close to the mid-point of PNC's full-year guidance, which predicts a 4-5% decrease.
Evercore ISI's conservative approach includes an assumption of flat average loan balances for the full year of 2024, contrasting with PNC's guidance of a 1% increase. This is based on subdued loan demand observed at PNC and its peers in early 2024.
However, the firm notes PNC's NII forecast for 2024 and its confidence in achieving a record NII in 2025 rely on the significant impact of fixed asset repricing as lower-yielding securities and swaps mature.
The firm also anticipates stable expenses for the full year, aligning with management's guidance and considering better-than-expected results in the first quarter.
A modestly lower loan loss provision (LLP) is modeled despite ongoing deterioration in office commercial real estate, taking into account the loan loss reserve (LLR) build for office spaces in the first quarter combined with management's confidence in the adequacy of PNC's overall LLR, which saw a slight decrease from the previous quarter.
Evercore ISI remains positive on PNC's prospects, highlighting the bank's high-quality status amid a challenging environment. PNC's ability to manage expenses and its potential for top-line growth through asset repricing and capital markets are seen as drivers for improving returns through 2025.
The bank's risk profile is also considered favorable compared to peers as credit stress emerges. With significant balance sheet strength, scale, and market presence, PNC is well-positioned to compete against larger universal banks.
Additionally, PNC holds a capital catalyst in its Visa (NYSE:V) Class B shares, which have an unrealized gain of $1.6 billion, approximately half of which can be liquidated in May 2024. Trading at 11.8 times Evercore ISI's 2024 EPS estimate, PNC's stock carries a roughly 1x premium over its peers, yet trades at a discount relative to its five-year average next twelve months (NTM) price-to-earnings (P/E) premium.
The firm sees potential for PNC's relative multiple to rise as macroeconomic trends weaken and interest rates remain volatile. The price target has been modestly lowered to reflect lower sector valuations, but the Outperform rating is reiterated.
InvestingPro Insights
In light of Evercore ISI's updated outlook on PNC Financial, current data from InvestingPro provides additional context for investors considering PNC's stock. As of the last twelve months of Q4 2023, PNC has demonstrated a notable performance with a revenue of $20.75 billion and an operating income margin of 32.47%. Despite a slight revenue growth of 0.51% during this period, the bank has shown a remarkable 6-month price total return of 36.5%, indicating strong investor confidence.
InvestingPro Tips highlight PNC's commitment to shareholder returns, with a track record of raising dividends for 13 consecutive years and maintaining dividend payments for over half a century. These attributes, coupled with PNC's status as a prominent player in the banking industry, underscore its resilience and potential for long-term profitability, as analysts predict the company will remain profitable this year.
For investors seeking more insights, there are additional InvestingPro Tips available that can further inform investment decisions. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro, where you can explore a comprehensive list of tips and metrics tailored to your financial analysis needs.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.