PNC Stock in Focus for Premium Buyers

PNC looks to compete with “The Big Four Banks” in recent acquisition

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The PNC Financial Services Group, Inc. (NYSE:PNC) recently announced an agreement to acquire the U.S. side of BBVA’s business. With this acquisition, PNC Financial Services would become the largest regional bank company in the US and the 5th biggest largest U.S. retail bank. PNC Financial Services would only be trailing JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC), and Citigroup (C).

So far in 2020, PNC has taken a 17% haircut. However, the shares last week cleared their 320-day moving average, a trendline that stifled a rally back in June. In the last six months, the stock has tacked on 25%. 

Using Schaeffer's robust historical database, we conduct extensive research on each underlying equity and determined which of those underlying equities’ options have historically had underpriced or overpriced options. In doing so, each stock is given a Schaeffer's Volatility Scorecard (SVS) ranking. PNC is currently sporting a ranking of 82 out of 100. A high SVS reading indicates that the stock has consistently delivered bigger returns than its options implied volatility (IV) levels have predicted, meaning it may be a strong candidate for premium-buying strategies going forward. 

PNC Financial Services has beat expectations on all of its four most recent earnings reports. In the fourth quarter of 2019, PNC Financial Services beat expectations by $0.04. To kick off 2020, the company beat expectations by a margin of $0.24. PNC Financial Services boosted its EPS to remarkable $8.40 in the second quarter of 2020. beating expectations by an enormous margin of $7.89. In its most recent quarterly report, PNC Financial Services beat its earnings target by a whopping 60% with a reported an EPS of $3.39 instead of the expected EPS of $2.12. As for PNC Financial Services' next earnings report, the company is expected to report an EPS of $2.53.

PNC stock offers a forward dividend of $4.60 and a dividend yield of 3.56%. The last dividend PNC Financial Services paid was for $1.15. The company has paid dividends since 1986.

As would be expected of such a large banking institution, PNC Financial Services' fundamentals are solid. The only negative fundamental mark is the $42.65 billion in debt that the company holds. Nonetheless, the bank's profits are consistent and its revenues continue to grow on an annual basis. Furthermore, PNC currently trades at an unreasonably low price-earnings ratio of 7.83 and offers a fairly high dividend yield. In addition, the company also has a book value of $117.36 and price-to-book value of 1.11, which means the stock trades at nearly the same price as what the company’s equity is worth.

Overall, as an investment, PNC Financial Services has all the security that comes with most of the other big bank stocks. The company's recent acquisition of BBVA USA demonstrates its ambition to grow and compete with the “Big Four Banks." From a risk/reward perspective, PNC stock is perhaps one of the most attractive plays within the banking sector right now.


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