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Can Citizens (CFG) Maintain its Earnings Beat Streak in Q4?

Zacks Equity Research

Citizens Financial Group CFG is scheduled to report fourth quarter and 2019 results on Jan 17, before market open. While its revenues are expected to have improved year over year, earnings might have declined.

Before we look at the factors that might have influenced fourth-quarter earnings, let’s see how the company performed in the past quarters.

In third-quarter 2019, this Providence, RI-based bank displayed organic growth. Rise in revenues and a strong capital position were the key positives. However, expenses and provisions witnessed a rise.

Citizens surpassed estimates in each of the trailing four quarters, the average beat being 3.24%.

Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. price-eps-surprise | Citizens Financial Group, Inc. Quote

Factors at Play

Lower Net Interest Income (NII): A dismal lending scenario — mainly in the areas of commercial and industrial loans — might have affected the bank’s interest income. Also, the company’s net interest margin is expected to have been hurt by lower interest rates.

However, rise in earning assets is likely to have boosted interest income. The Zacks Consensus Estimate for average interest earning assets of $147.7 billion for the to-be-reported quarter indicates a 2.7% rise from the year-ago reported figure.

The consensus estimate of $1.14 billion for NII suggests 2.6% year-over-year fall.

Moreover, management expects NII to be broadly stable as loan growth might have offset rate or yield-curve effects on margin.

Higher Capital Market Fees: Equity markets performance and the central banks’ accommodative stance drove corporates to issue equities across the globe. Further, bond issuance volumes were strong, while debt issuances were muted as loan demand was soft.

Though the number of closed deals declined during the fourth quarter, a higher number of announced M&As indicate a strong pipeline. Also, Citizens’ might have charged higher advisory fees due to its solid business profile. The consensus estimate for capital market fees of $59 million indicates a 27.7% rise.

Rise in Fee Income: Per the Fed’s data, deposits improved in the fourth quarter, and are likely to have aided Citizens in bagging higher service charges and fees. Further, the trend of consumer spending was decent during the quarter, which is likely to have provided some support to the company’s top line. The consensus estimate for card fees of $67 million indicates an 8.1% increase.

Due to lower mortgage rates, mortgage refinancing activities and fresh originations picked pace in the quarter, as a result of which, Citizens is expected to have reported higher mortgage banking fees. The Zacks Consensus Estimate for same is $84 million, indicating 64.7% rise.

Furthermore, given the decent equity markets, trust and investment services fees are expected to have risen 20.9% year over year to $52 million.

Given expectations of rise in most components, the Zacks Consensus Estimate for non-interest income is $487 million, up 15.7%.

Higher Expenses: Despite its TOP 5 efficiency initiatives, Citizens’ expenses are expected to have increased due to investments in enhanced data analytics and technology to improve customer experience.

Earnings Whispers

The chances of Citizens beating the Zacks Consensus Estimate in the fourth quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Citizens is +0.45%.

Zacks Rank: The stock currently carries a Zacks Rank #3.

The Zacks Consensus Estimate for earnings for the quarter is 96 cents, which suggests decline of 2% from the year-ago reported number. However, the consensus estimate for sales of $1.63 billion indicates 2.1% growth.

Other Stocks to Consider

Here are some other finance stocks that you may want to consider as these too have the right combination of elements to post an earnings beat in their upcoming releases, per our model.

TD Ameritrade Holding Corporation AMTD has an Earnings ESP of +0.39% and a Zacks Rank #3 at present. The company is slated to release results on Jan 21.

Associated Banc-Corp ASB is slated to release results on Jan 23. It presently has an Earnings ESP of +1.10% and a Zacks Rank #3.

Bank of Hawaii Corporation BOH is slated to release results on Jan 27. It currently has an Earnings ESP of +0.37% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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