CIT Group (CIT) Stock Falls as Q4 Earnings Lag Estimates

Shares of CIT Group Inc. CIT fell 1.6% following the release of its fourth-quarter 2016 results. Adjusted earnings from continuing operations of 59 cents per share lagged the Zacks Consensus Estimate of 79 cents.

Lower-than-expected results were primarily due to elevated levels of expenses and a decline in non-interest income. However, stable net interest income was on the positive side. Moreover, capital ratios reflected improvement during the quarter.

After considering several non-recurring items, net loss was $1.15 billion or $5.71 per share, against net income of $144.5 million or 72 cents per share in the prior-year quarter.

For 2016, adjusted earnings from continuing operations were $1.82 per share, which missed the Zacks Consensus Estimate of $3.18. Further, net loss was $860.9 million or $4.27 per share, against net income of $1.06 billion or $5.67 per share in 2015.

Stable Net Interest Income, Expenses Surge

Net revenue for the quarter was $437.2 million, down 23.4% from the prior-year period. On a non-GAAP basis, net revenue of $309.9 million fell 32.5% year over year, owing to lower net finance revenue and negative other income. Further, the figure missed the Zacks Consensus Estimate of $620.3 million.

For 2016, net revenue (non-GAAP basis) increased 26.4% year over year to $1.86 billion. However, it was below the Zacks Consensus Estimate of $2.53 billion.

Net interest revenue was $296.6 million, almost stable the prior-year quarter. Total non-interest income was $140.6 million, down 48.7% year over year.

Net finance margin decreased 5 basis points year over year to 3.59%.

Operating expenses (excluding restructuring costs and intangible assets amortization) were $368.7 million, a rise of 30% from the prior-year quarter. Increase in all cost components lead to the increase.

Credit Quality Improves

Net charge-offs were $23.7 million, down 23.8% from the prior-year quarter. Also, provision for credit losses was $36.7 million, down 36.3% year over year.

However, non-accrual loans increased 10.4% year over year to $278.6 million.

Healthy Balance Sheet and Capital Ratios

As of Dec 31, 2016, interest bearing cash and investment securities amounted to $10.1 billion, comprising $5.6 billion in cash and $4.5 billion in investment securities.

As of Dec 31, 2016, Common Equity Tier 1 and Total Capital ratios were 13.8% and 14.5%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 12.7% and 13.2% in the prior-year quarter.

Our Viewpoint

CIT Group’s efforts to realign operations will help it in focusing more on the U.S. operations, which will support profitability growth. Also, the access to low-cost debt and steady capital deployment activities continues to impress shareholders.

However, mounting expenses is a major concern. Moreover, sluggish growth in industries where CIT Group provides finance, together with stringent regulations will likely dent its performance in the near term. Also, mounting costs make us apprehensive.

Currently, CIT Group carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Among other stocks in this space, General Finance Corp. GFN is slated to report results on Feb 6, while On Deck Capital, Inc. ONDK and StoneCastle Financial Corp. BANX are likely to announce their numbers on Feb 27 and Feb 28, respectively.

Zacks' Top 10 Stocks for 2017

In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?

Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

To read this article on Zacks.com click here.

Zacks Investment Research