On Thursday, Citi reiterated its Buy rating for Citizens Financial Group (NYSE:CFG), maintaining the $50.00 price target. The firm's analyst pointed out that Citizens Financial's performance was slightly below par, with a decrease of about 2.5% compared to the Bank Index (BKX), which saw an increase of approximately 1.7%. This was attributed to a shortfall in core pre-provision net revenue (PPNR).
The fourth-quarter guidance provided by Citizens Financial includes an expectation of a 40% lower deposit beta, which is anticipated to rise to about 50-55% by the fourth quarter of 2027. Citi's analyst believes this is achievable but considers it somewhat optimistic at this stage. Nonetheless, the negative impact of swap headwinds is now fully incorporated into the current financial run rate, and the outlook for net interest margin (NIM) is viewed positively, as outlined by management.
Citi's stance is influenced by the perception that the market is overvaluing the short-term challenges caused by underwater swaps, rather than focusing on the medium-term prospects, which the analyst argues present a compelling opportunity for investors. The commentary provided during the company's call was deemed constructive, especially regarding credit aspects. Management noted that criticized loans have remained stable over recent quarters.
In light of these observations, Citi has made minor revisions to its estimates for Citizens Financial Group but has chosen to reiterate both the Buy rating and the $50 target price. This target takes into account a conservative cost of equity (CoE) when compared to peers, as well as a 14% normalized return on tangible common equity (ROTCE).
In other recent news, Citizens Financial Group reported robust third-quarter results, with an underlying net income of $392 million and earnings per share at $0.79. The company's private banking sector saw a significant increase, with deposits rising to $5.6 billion, up from $4 billion in the previous quarter. Despite a 2.9% decrease in net interest income, Citizens Financial expects a rebound in the fourth quarter. The firm's TOP 9 program is projected to deliver a $135 million pretax run rate benefit by year-end.
Citizens Financial maintains a strong capital position with a CET1 ratio of 10.6% and returned $516 million to shareholders through share repurchases and dividends this quarter. The company's liquidity coverage ratio stands at a robust 122%. Looking ahead, the firm anticipates modest loan growth in the fourth quarter, particularly in the private banking and commercial sectors.
Analysts noted a slight increase in net charge-offs and non-accrual loans, but the company remains confident that non-performing assets are peaking. The firm projects a net interest margin of approximately 3% by the end of 2025, driven by an expected increase in net interest income and strategic initiatives.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Citizens Financial Group's (NYSE:CFG) financial position and market performance. The company's market capitalization stands at $18.92 billion, with a P/E ratio of 16.17, indicating a relatively moderate valuation compared to earnings. Notably, CFG has demonstrated strong price performance, with a 64.9% total return over the past year and a 31.27% return in the last six months, aligning with Citi's positive outlook on the stock's medium-term prospects.
InvestingPro Tips highlight that CFG has maintained dividend payments for 11 consecutive years, which may appeal to income-focused investors. The current dividend yield is 3.96%, potentially offering an attractive income stream. Additionally, analysts predict the company will remain profitable this year, supporting Citi's constructive view on the company's financial health.
It's worth noting that InvestingPro offers 7 additional tips for CFG, providing investors with a more comprehensive analysis of the company's financial situation and market position. These insights could be particularly valuable given the complex factors affecting CFG's performance, as discussed in Citi's analysis.
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