Why PNC Financial Has Been Pricing at a Premium

Robert Karr - Author

Apr. 17 2015, Published 12:02 p.m. ET

Performing divisions

PNC Financial (PNC) successfully diversified its banking operations by extending offerings in asset management, consumer services, and investment banking. The non-interest income forms ~48% of the total revenue. It provides the company with good growth opportunities. The holdings in the world’s biggest asset manager, BlackRock (BLK), led to better margins for the bank over the past few years. PNC Financial reported net income of $933 for 1Q15—compared to $988 million in the previous quarter.

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Premium valuations

The consistent generation of flows, distribution of capital through repurchase and dividend, and diversified sources of income enabled the company to garner premium pricing—compared to other companies like JPMorgan Chase (JPM), Bank of America (BAC), Citigroup (C), Bank of Montreal (BMO), BB&T Corporation (BBT), US Bancorp (USB). and Wells Fargo (WFC). They form 31.92% of the Financial Select Sector SPDR (XLF).

Currently, PNC Financial is trading at 12.5x on a one-year forward earning basis—compared to the 11.5x of its industry peers. Historically, PNC Financial traded in line with its peers. However, in the last few quarters the market has been pricing it at a premium. The higher growth in the commercial lending and asset management business will help the company’s valuation in the next few quarters. The expanded balance sheet will support the company’s future plans to expand its banking operations organically and inorganically.


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