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Loan & Fee Income Growth to Aid Citizens' (CFG) Q1 Earnings

Zacks Equity Research

Citizens Financial Group CFG is slated to report first-quarter 2019 results on Apr 18, before market open. Its revenues and earnings are expected to rise year over year.

Before we look at the factors that might influence first-quarter earnings, let’s take a look at how the company performed in the past quarters.

In fourth-quarter 2018, this Providence, RI-based bank displayed organic growth. Rise in revenues and loan growth were the key highlights. Also, the company recorded higher deposits and lower expenses and provisions.

Notably, Citizens boasts an impressive surprise history. It surpassed earnings estimates in each of the trailing four quarters, the average beat being 3.1%.

Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. Price and EPS Surprise | Citizens Financial Group, Inc. Quote

Factors at Play

Net Interest Income (NII) to Exhibit Growth: The first quarter witnessed growth in commercial and industrial, and consumer lending scenarios, thus some support to NII is expected. Further, rise in earning assets is likely to boost interest income. The Zacks Consensus Estimate for average interest earning assets of $145.1 billion for the to-be-reported quarter indicates a 4.6% rise year over year.

In addition, margins are likely to expand due to higher interest rates, further boosting NII. However, flattening of the yield curve during the quarter is likely to offset the benefit to some extent.

The consensus estimate of $1.16 billion for NII reflects 6% year-over-year growth.

Moreover, management expects 1% sequential average loan growth for the quarter. Further, margin is expected to remain stable.

Capital Market Fees to Rise: TheFed’s dovish stance on future rate hikes must have led to a slight increase in debt issuances during the quarter, thus supporting debt underwriting fees.

Also, while M&A deal value and volume witnessed a fall due to higher borrowing costs and several geopolitical concerns during the first quarter, Citizens’ might have bagged higher advisory fees due to its solid business profile. Further, the strong M&A deal pipeline from the previous quarters might have offered some support. The consensus estimate for capital market fees of $49.20 million indicates a 26.2% rise.

Fee Income to Register Growth: Per the Fed’s data, deposits improved in the first quarter and is likely to have aided Citizens in bagging higher service charges and fees. The consensus estimate of $128 million for the same indicates 3.2% year-over-year jump.

Further, the trend of consumer spending was decent during the quarter, which is likely to provide some support to the company’s top line. The consensus estimate for card fees of $65 million indicates a 6.6% increase.

Due to higher interest rates, mortgage refinancing activities and fresh originations might have remained muted in the first quarter as well. However, driven by the impact of the Franklin American Mortgage acquisition, Citizens is expected to report higher mortgage banking fees. The Zacks Consensus Estimate for same is $51 million, up significantly year over year.

Furthermore, with strong equity markets, trust and investment services fees are expected to rise 6.3% year over year to $42.5 million.

Given expectations of rise in most components, the Zacks Consensus Estimate for non-interest revenues is $421 million, up 13.5%.

Expenses to Trend Higher: Despite its TOP V efficiency initiatives,Citizens’ expenses are expected to increase in the first quarter due to investments in enhanced data analytics and technology to improve customer experience. Also, seasonal rise in compensations will keep costs elevated.

Earnings Whispers

According to our quantitative model, we cannot conclusively predict an earnings beat for Citizens in the upcoming results. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, which is not the case here as elaborated below.

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 0.00%.

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

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 89 cents, which reflects year-over-year improvement of 14.1%. Also, the consensus estimate for sales of $1.58 billion indicates 8.3% growth.

Stocks to Consider

Here are some stocks you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around.

Northern Trust Corporation NTRS is scheduled to release results on Apr 23. It has an Earnings ESP of +0.57% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fifth Third Bancorp FITB is scheduled to release results on Apr 23. The company, which carries a Zacks Rank of 2 (Buy), has an Earnings ESP of +0.34%.

The Earnings ESP for People's United Financial PBCT is +2.59% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Apr 18.

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Fifth Third Bancorp (FITB) : Free Stock Analysis Report
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People's United Financial, Inc. (PBCT) : Free Stock Analysis Report
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