Over the past six months, PNC Financial Services Group has been a great trade, beating the S&P 500 by 19.7%. Its stock price has climbed to $228.02, representing a healthy 25.8% increase. This run-up might have investors contemplating their next move.
Is now the time to buy PNC Financial Services Group, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is PNC Financial Services Group Not Exciting?
We’re happy investors have made money, but we're cautious about PNC Financial Services Group. Here are three reasons you should be careful with PNC and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
While banks generate revenue from multiple sources, investors view net interest income as a cornerstone - its predictable, recurring characteristics stand in sharp contrast to the volatility of one-time fees.
PNC Financial Services Group’s net interest income has grown at a 8.8% annualized rate over the last five years, slightly worse than the broader banking industry.
2. Low Net Interest Margin Reveals Weak Loan Book Profitability
Net interest margin (NIM) represents how much a bank earns in relation to its outstanding loans. It's one of the most important metrics to track because it shows how a bank's loans are performing and whether it has the ability to command higher premiums for its services.
Over the past two years, we can see that PNC Financial Services Group’s net interest margin averaged a weak 2.8%, meaning it must compensate for lower profitability through increased loan originations.
3. TBVPS Projections Show Stormy Skies Ahead
Tangible book value per share (TBVPS) growth comes from a bank’s ability to profitably lend while maintaining prudent risk management and efficient operations.
Over the next 12 months, Consensus estimates call for PNC Financial Services Group’s TBVPS to shrink by 5.2% to $118.75, a sour projection.
Final Judgment
PNC Financial Services Group isn’t a terrible business, but it doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 1.5× forward P/B (or $228.02 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
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