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.
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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 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
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
Other ModernGraham posts about related companies
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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