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Will Fee Income Growth Aid Citizens (CFG) in Q3 Earnings?

Zacks Equity Research
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Citizens Financial Group CFG is scheduled to report third-quarter 2018 results on Oct 19, before the market opens. The company is expected to witness year-over-year growth in revenues and earnings.

In the last reported quarter, this Providence, RI-based bank displayed organic growth. Continued rise in revenues, loan growth and lower expenses were the key highlights. Also, the company recorded rise in deposits. However, results were partially offset by higher provisions.

Notably, Citizens Financial boasts an impressive surprise history. It surpassed earnings estimates in each of the trailing four quarters with an average beat of 4.3%.

Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. Price and EPS Surprise | Citizens Financial Group, Inc. Quote


However, the company’s price performance has not been very impressive. Its shares have lost 11.8% in the past three months compared with 11.2% decline recorded by the industry.

Will the price performance improve post third-quarter earnings release? Let’s check which factors are expected to impact Citizens Financial’s earnings.

Factors That Might Drive Q3 Results

Net Interest Income (NII) to Exhibit Growth: While the third quarter witnessed slowdown in commercial and industrial, and consumer loan growth, some support to NII is expected to have been provided.

Further, rise in earning assets is likely to have boosted interest income as well. The Zacks Consensus Estimate for average interest earning assets of $142.4 billion for the to-be-reported quarter indicates a 3.6% rise year over year.

In addition, despite flattening of the yield curve during the quarter, margins are likely to have expanded due to the rising interest rates, further boosting NII. Per the consensus estimate, net interest margin is expected to be 3.20%, up 15 basis points year over year.

Overall, the consensus estimate of $1.15 billion for NII reflects slight year-over-year growth.

Moreover, management expects 1.25% sequential average loan growth for the quarter and modest rise in margins.

Fee Income Might Increase: The trend of earning solid advisory and underwriting fees for debt and equity issuance is unlikely to have remained in the Sep-end quarter as rising rates will have limited corporates’ involvement in these activities. The consensus estimate for Citizens Financial’s capital market fees of $50 million indicates a 5.7% decline.

Also, with the rising interest rates, mortgage refinancing activities and fresh originations have been slowing down. Therefore, no major help is expected from this segment.

However, the trend of consumer spending was strong during the quarter, which is likely to provide some support to the company’s top line. The consensus estimate for card fees of $60 million indicates a 3.4% increase.

Furthermore, the Zacks Consensus Estimate for foreign exchange and interest rate products fees is $30.3 million, reflecting year-over-year growth of 26.4%. Also, trust and investment services fees is expected to rise 10.5% year over year to $42 million.

With improvement in most of the components of fee income, total non-interest income is expected to rise. The Zacks Consensus Estimate for non-interest income is $414 million, indicating 8.7% rise on a year-over-year basis.

Controlled Expenses: Citizens Financial’s expenses are expected to continue declining due to its TOP IV efficiency initiative. Also, its self-funding revenue initiatives might help lower the efficiency ratio.

Management projects non-interest expenses to rise modestly on a sequential basis.

Credit Quality Might Improve: Citizens Financial’s credit quality is expected to have improved during the quarter backed by an improving economy. Per the consensus estimate, non-performing loans and leases are likely to decline 8.5% year over year to $853 million.

Earnings Whispers

According to our quantitative model, we cannot conclusively predict an earnings beat for Citizens Financial in the upcoming results. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, which is not the case here as elaborated below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Earnings ESP for Citizens Financial is 0.00%.

Zacks Rank: The stock currently carries a Zacks Rank #3.

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 90 cents, which reflects year-over-year improvement of 32.4%. Also, the consensus estimate for sales of $1.57 billion indicates 8.6% growth from the prior-year quarter.

Stocks That Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

Bank of Hawaii Corporation BOH has an Earnings ESP of +0.71% and carries a Zacks Rank of 3. The company is slated to release results on Oct 22.

SVB Financial Group SIVB is slated to report third-quarter 2018 results on Oct 25. It has an Earnings ESP of +0.11 % and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Cullen/Frost Bankers CFR is also slated to release results on Oct 25. It has an Earnings ESP of +0.54% and carries a Zacks Rank #3.

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Cullen/Frost Bankers, Inc. (CFR) : Free Stock Analysis Report
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