Citizens Financial Group, Inc. (CFG) is scheduled to report its fourth-quarter and full year 2014 results on Monday, Jan 26, before the opening bell.
Since its debut on Sep 24, 2014 on the New York Stock Exchange (NYSE), Citizens Financial has gained over 12%.
Based in Providence, RI, Citizens Financial, with its strong presence in the market for 186 years, has evolved through meaningful acquisitions and organic growth. In 1988, The Royal Bank of Scotland Group plc (RBS) acquired Citizens, which later expanded via a number of acquisitions. Citizens Financial’s assets of $131.3 billion as of Sep 30, 2014 makes it one of the biggest regional banks in the U.S.
Following the completion of a capital transaction with RBS Group on Oct 8, 2014, RBS Group holds 70.5% of the outstanding common stock of Citizens Financial.
A Look Back at Post IPO Results
Post IPO, Citizens Financial reported third-quarter adjusted earnings per share of 36 cents, up from 26 cents in the prior-year quarter. The adjusted figure excludes restructuring charges and significant items.
Adjusted revenues increased 1% year over year in the third quarter to $1.16 billion. While net interest income increased, non interest income declined. Expenses remained stable and provision for credit losses declined 47% year over year. Net interest margin fell 11 basis points year over year to 2.77%.
Will Citizens Financial miss on earnings this quarter? Let’s see how things have shaped up.
What to Expect?
Citizens Financial initiated implementation of a restructuring initiative in 2014. The initiative is aimed at achieving operating efficiencies and containing costs. Owing to this program, the company anticipates to incur total restructuring costs of around $121 million through Dec 31, 2015. These costs primarily include cost related to employee compensation, facilities and technology services. The company is also progressing with its strategic and regulatory initiatives.
In the third-quarter earnings presentation, Citizens Financial stated that it expects restructuring costs of $35 million-$45 million in the fourth quarter.
Net interest margin is expected to remain stable. The quarter is expected to experience loan growth in between 2%–3% on a sequential basis.
The company expects moderate operating leverage and slight improvement in operating efficiency ratio in the quarter.
Credit metrics are expected to remain stable. Also the quarter is not likely to witness commercial recoveries and reserve release.
Further, year end Tier 1 common equity ratio is estimated at 12.5%. Loan-to-deposit ratio is projected at 98%.
Activities of Citizens Financial during the quarter were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 35 cents per share over the last seven days.
Earnings Whispers?
Our proven model does not conclusively show that Citizens Financial is likely to beat the Zacks Consensus Estimate in the fourth quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Citizens Financial is -14.29%. This is because the Most Accurate estimate of 30 cents per share lies below the Zacks Consensus Estimate of 35 cents per share.
Zacks Rank: Citizens Financial ’s Zacks Rank #3 (Hold) increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings surprise.
Stocks That Warrant a Look
Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:
T. Rowe Price Group, Inc. (TROW) has an Earnings ESP of +0.89% and it carries a Zacks Rank #3. The company is expected to release results on Jan 28.
BOK Financial Corporation (BOKF) has an Earnings ESP of +0.94% and a Zacks Rank #3. It is slated to report results on Jan 28.
Aon plc (AON) has an Earnings ESP of +1.08% and a Zacks Rank #3. It is slated to report results on Feb 6.
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