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Citizens Financial (CFG) on Track to Revamp Profitability

Zacks Equity Research

On Aug 29, we issued an updated research report on Citizens Financial Group, Inc. CFG. The company currently displays solid top-line growth and a strong capital position. However, pending legal issues remain a concern.

The company maintained its earnings beat streak in the last reported quarter. The results reflected higher revenues and lower provisions for loan losses. However, higher expenses offset the positives.

Further, the company’s capital strength is reflected in its involvement in inorganic growth activities. In the second quarter, Citizens Financial entered into an agreement to acquire Western Reserve Partners LLC, a Cleveland-based merger and acquisition advisory firm, with a motive to strengthen its M&A and financial advisory wing. Also, the deal expanded its presence in the Midwest region.

Also, Citizens Financial’s capital deployment activities are impressive. It has a share repurchase program of up to $850 million underway. As part of the 2017 Capital Plan, the company will raise the common stock dividend by 29% from the third quarter. On the back of its favorable debt/equity and dividend payout ratios compared with the industry, we expect these activities to be sustainable.

The Providence, RI-based company continues to make efforts to revamp its profitability. Apart from the ongoing ‘Tapping Our Potential’ (TOP) III efficiency initiatives that the company had introduced in mid-2016, it has also launched the TOP IV Program in the previous quarter. This new program is expected to achieve pre-tax benefit of $90-$105 million by the end of 2018.

However, the company remains exposed to several pending legal hassles. Thus, it is likely to be impacted by high legal costs going forward.

Over the past 30 days, the company has not been able to gain analysts’ confidence. Its earnings estimates for the current year have remained stable at $2.53.

Nevertheless, shares of Citizens Financial have lost 6.5% so far this year, versus the industry’s decline of 9.8%.

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

Some better-ranked stocks in the same space are Commerce Bancshares, Inc. CBSH, Washington Federal, Inc. WAFD and FB Financial Corporation FBK. All these stocks carry a Zacks Rank #2 (Buy).

Commerce Bancshares’ Zacks Consensus Estimate for current-year earnings was revised 3.5% upward for 2017, in the past 60 days. Also, its share price has increased 7.5% in the past 12 months.

Washington’s current-year earnings estimates were revised slightly upward, over the past 60 days. Further, the company’s shares have jumped 18.3% in a year.

FB Financial’s Zacks Consensus Estimate for current-year earnings was revised 3.2% upward, over the last 30 days. Moreover, in the past year, its shares have gained 66.4%.

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