Citizens Benefits From Growth Initiatives, Costs Increase
Zacks Investment Research | Feb 27, 2020 06:27AM ET
Citizens Financial Group’s (NYSE:C) displays solid top-line growth and a strong capital position. Also, rising loan and deposit balances act as a tailwind. However, the bottom line is affected by rising costs. Also, pending legal issues pose a concern.
The company remains committed in revamping profitability through ‘Tapping Our Potential’ (TOP) efficiency initiatives, which aim at enhancing revenues and efficiency. In July 2019, it introduced the TOP 6 Program, which is expected to achieve a pre-tax benefit of $300-$325 million by the end of 2021. The TOP 5 program was successful and delivered a pre-tax benefit of $125 million by 2019-end.
Citizens Financial’s capital deployment activities are impressive. It has a share repurchase program of up to $1.28 million in place. Markedly, the company raised the common stock dividend by 8% in January 2020. Backed by its favorable debt/equity and dividend payout ratios compared with the industry, we expect these activities to be sustainable.
Further, the company’s loans and deposits recorded a CAGR of 4.7% and 5.1%, respectively, over the last five years (2015–2019). It has been benefiting from rising non-interest-bearing deposits that provide a low-cost funding base. We believe that Citizens Financial is well positioned to grow further backed by the improving U.S. economy.
The company’s earnings estimates for the current year have been revised slightly upward to $3.88 over the past 60 days.
However, the Providence, RI-based company’s non-interest expenses witnessed a CAGR of 4.2% over the last five years (2015-2019). Costs are likely to remain elevated due to the company’s investments in newer technologies and focus on building fee income capabilities organically.
Further, it remains exposed to several pending legal hassles that are likely to keep legal costs high, going forward. Also, significant exposure to commercial loans keeps us apprehensive.
Shares of Citizens Financial have gained 2.5% over the past six months compared with the Zacks Investment Research
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