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PNC Financial Services Group Inc Valuation – March 2018 $PNC

Company Profile (obtained from Marketwatch): PNC Financial Services Group, Inc. engages in the provision of diversified financial services, including retail and business banking; residential mortgage banking; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-backed lending; wealth management and asset management. It operates through the following segments: Retail Banking, Corporate & Institutional Banking, Asset Management Group, Residential Mortgage Banking, BlackRock and Non-Strategic Assets Portfolio. The Retail Banking segment provides deposit, lending, brokerage, trust, investment management, and cash management services to consumer and small business customers within its primary geographic markets. The Corporate & Institutional segment provides lending, treasury management, and capital markets-related products and services to mid-sized corporations, government and not-for-profit entities, and selectively to large corporations. The Asset Management Group segment includes personal wealth management for high net worth and ultra high net worth clients and institutional asset management. The Residential Mortgage Banking segment directly originates primarily first lien residential mortgage loans on a nationwide basis with a significant presence within the retail banking footprint, and also originates loans through majority and minority owned affiliates. Mortgage loans represent loans collateralized by one-to-four-family residential real estate. The BlackRock segment manages assets on behalf of institutional and individual investors worldwide through a variety of equity, fixed income, multi-asset class, alternative and cash management separate accounts and funds, including iShares. The Non-Strategic Assets Portfolio segment offers commercial residential development loans, cross-border leases, consumer brokered home equity loans, retail mortgages, non-prime mortgages, and residential construction loans. The company was founded in 1983 and is headquartered in Pittsburgh, PA.

PNC Chart

PNC data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of PNC – March 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $76,161,485,882 Pass
2. Earnings Stability Positive EPS for 10 years prior Pass
3. Dividend Record Dividend Payments for 10 years prior Pass
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 74.71% Pass
5. Moderate PEmg Ratio PEmg < 20 17.84 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.62 Pass
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $8.97
MG Growth Estimate 5.44%
MG Value $173.90
Opinion Fairly Valued
MG Grade B-
MG Value based on 3% Growth $130.13
MG Value based on 0% Growth $76.28
Market Implied Growth Rate 4.67%
Current Price $160.07
% of Intrinsic Value 92.05%

PNC Financial Services Group Inc qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position . The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $6.59 in 2014 to an estimated $8.97 for 2018. This level of demonstrated earnings growth supports the market’s implied estimate of 4.67% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into PNC Financial Services Group Inc revealed the company was trading above its Graham Number of $149.13. The company pays a dividend of $2.6 per share, for a yield of 1.6% Its PEmg (price over earnings per share – ModernGraham) was 17.84, which was below the industry average of 24.17, which by some methods of valuation makes it one of the most undervalued stocks in its industry.

PNC Financial Services Group Inc performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

Graham Number $149.13
PEmg 17.84
PB Ratio 1.62
Dividend Yield 1.62%
TTM Dividend $2.60
Number of Consecutive Years of Dividend Growth 7

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Long-Term Debt & Capital Lease Obligation $59,088,000,000
Total Assets $380,768,000,000
Intangible Assets $11,005,000,000
Total Liabilities $333,255,000,000
Shares Outstanding (Diluted Average) 480,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $9.84
Dec2017 $10.36
Dec2016 $7.30
Dec2015 $7.39
Dec2014 $7.30
Dec2013 $7.36
Dec2012 $5.28
Dec2011 $5.64
Dec2010 $5.74
Dec2009 $4.36
Dec2008 $2.44
Dec2007 $4.35
Dec2006 $8.73
Dec2005 $4.55
Dec2004 $4.21
Dec2003 $3.55
Dec2002 $4.15
Dec2001 $1.26
Dec2000 $4.31
Dec1999 $4.15
Dec1998 $3.60

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $8.97
Dec2017 $8.34
Dec2016 $7.20
Dec2015 $6.96
Dec2014 $6.59
Dec2013 $6.05
Dec2012 $5.16
Dec2011 $4.90
Dec2010 $4.73
Dec2009 $4.44
Dec2008 $4.61
Dec2007 $5.49
Dec2006 $5.72
Dec2005 $3.99
Dec2004 $3.64
Dec2003 $3.39
Dec2002 $3.37

Recommended Reading:

Other ModernGraham posts about the company

12 Best Stocks For Value Investors This Week – 11/14/15
PNC Financial Services Group Valuation – November 2015 Update $PNC
The Best Companies of the Banking Industry – October 2015
The 20 Best Stocks For Value Investors This Week – 8/15/15
PNC Financial Services Group Inc. Analysis – August 2015 Update $PNC

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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