Citizens (CFG) Seeks to Grow Profits, Capital Position Aids

Citizens Financial Group CFG currently displays solid top-line growth and a strong capital position. Also, rising loan and deposits balance acts as a tailwind. However, pending legal issues remain a concern.

The company has an impressive earnings surprise history, surpassing the Zacks Consensus Estimate in each of the trailing four quarters, with an average beat of 5.4%

The Providence, RI-based company remains committed to revamping its profitability through ‘Tapping Our Potential’ (TOP) efficiency initiatives, which aim to enhance revenues and efficiency. In mid-2017 the company had introduced TOP IV Program, which is expected to achieve pre-tax benefit of $95-$110 million by the end of 2018.

Further, the company’s capital strength is reflected in its involvement in inorganic growth activities. Recently, Citizens Financial entered into an agreement to acquire Franklin American Mortgage Company, with a motive to strengthen its mortgage banking business. On completion of the deal, the company expects itself to be positioned among the top-15 bank-owned, originators and servicers.

Also, Citizens Financial’s capital deployment activities are impressive. It has a share repurchase program of up to $850 million underway. Moreover, the company raised the common stock dividend by 22% in January 2018. On the back of its favorable debt/equity and dividend payout ratios compared with the industry, we expect these activities to be sustainable.

However, the company remains exposed to several pending legal hassles. Thus, it is likely to be impacted by high legal costs going forward.

Nevertheless, the company has been able to gain analysts’ confidence, over the last 30 days. Its earnings estimates for the current year were revised slightly upward to $3.45.

Shares of Citizens Financial have gained 2.9% over the past six months, outperforming the industry’s rally of 1.4%.

Currently, the stock carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Some other top-ranked stocks in the same space are Old Second Bancorp OSBC, Independent Bank Corporation IBCP and Farmers National Banc Corp. FMNB. All these stocks carry a Zacks Rank of 2.

Old Second Bancorp’ Zacks Consensus Estimate for current-year earnings was revised 5.7% upward for 2018, in the past 60 days. Also, its share price has increased 29.2% in the past 12 months.

Independent Bank’s current-year earnings estimates were revised 2.5% upward, over the past 60 days. Further, the company’s shares have jumped 26.3% in a year.

Farmers National’s Zacks Consensus Estimate for current-year earnings was revised 1.8% upward, over the last 30 days. Moreover, in the past year, its shares have gained 15.7%.

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