Shares of CIT Group Inc. (CIT) have recorded a year-to-date return of 29.6%. The strong price appreciation benefited from top-line growth and lower expenses. However, we are not so optimistic about these positives translating into further price appreciation down the road as the company’s earnings will likely be under pressure due to the sluggishly recovering economy.
After observing CIT Group’s fundamentals following its third-quarter 2013 earnings release, it seems that keeping the company’s shares in your portfolio would not be a bad idea. However, we discourage further addition of the shares to your portfolio.
Reasons behind View
CIT Group’s third-quarter 2013 operating earnings per share of 99 cents beat the Zacks Consensus Estimate by a nickel and compared favorably with a loss of $1.49 per share in the prior-year quarter.
In order to counter the sluggish economic environment, CIT Group has been consistently striving to expand its market share. In 2012, the company launched Maritime Finance, which offers secured loans to operators of ocean-going and inland cargo vessels as well as offshore vessels and drilling rigs. Moreover, in 2011, the company announced establishment of CIT Real Estate Finance business and an online bank. All these initiatives are expected to drive revenue growth going forward.
Following the termination of CIT Group’s agreement with the Federal Reserve Bank of New York (which restrained the company from deploying capital without prior approval) in May 2013, the company announced a $200 million share buyback program. Further, in Oct 2013, the company reinstated its quarterly payout. Moreover, CIT Group has a healthy capital position that will expectedly aid capital deployment in the quarters ahead.
However, sluggish growth in industries such as commercial airlines, manufacturing, students, services and retail industries where CIT offers services, along with stringent regulations and a protracted economic recovery could affect the company’s growth.
The Zacks Consensus Estimate for CIT Group showed a mixed trend. For 2013, over the last 30 days, the estimate rose by a penny to $3.65. However, for 2014, over the same time span the estimate dropped by a penny to $4.08. Hence, the company now carries a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked financial stocks include Cielo SA (CIOXY), Euronet Worldwide Inc. (EEFT) and FleetCor Technologies, Inc. (FLT). All these have a Zacks Rank #1 (Strong Buy).