Goldman Sachs Maintains Neutral on PNC Despite Strong Results, Cites Modest FY24 Outlook

Goldman Sachs analyst Richard Ramsden anticipates a neutral investor response to PNC Financial Services Group, Inc.‘s PNC stronger results and updated FY24 guidance.

Today, the bank reported a revenue increase of 2% Y/Y to $5.411 billion, slightly missing the consensus of $5.412 billion, while adjusted EPS of $3.30 topped the consensus of $2.98.

For FY24, PNC expects net interest income (NII) to decline 4%, revenue to be down 1%-2% (vs. consensus of roughly unchanged Y/Y), and average loan down less than 1% (vs. Street estimate of flat Y/Y).

The analyst says that the third quarter 2024 guidance for NII, fee income, and expenses also suggests a slightly lower pre-provision net revenue (PPNR) compared to consensus.

Overall, the updated FY2024 guidance (at the midpoint) suggests a 2% lower PPNR than the Street, writes the analyst.

Given the revised rate expectations (potentially 2-3 rate cuts this year), the analyst anticipates management’s comments on the assumptions driving the guidance, NII trajectory in H2 2024 and 2025, expense trends, potential for operating leverage, credit outlook, and the likelihood of ongoing reserve releases in the near term.

In particular, the analyst anticipate investor inquiries regarding the trajectory towards losses in both consumer and corporate segments, and whether there has been any recent deterioration in credit trends.

Notably, net charge-offs (NCOs) for commercial real estate (CRE) rose to 1.28%, an increase of approximately 65 basis points Q/Q, prompting management to raise the office CRE reserve ratio from 9.7% to 10.3%.

Ramsden rated PNC as Neutral with a price target of $165.

Investors can gain exposure to the stock via IShares U.S. Regional Banks ETF IAT and Invesco Exchange-Traded Fund Trust II Invesco S&P Ultra Dividend Revenue ETF RDIV.

Price Action: PNC shares are up 4.66% at $176.89 at the last check Tuesday.

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