It has been about a month since the last earnings report for CIT Group Inc. (DEL) . Shares have added about 7.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CIT Group's Q3 Earnings Miss Estimates, Revenues Up
CIT Group announced third-quarter 2016 earnings from continuing operations of $0.73 per share, which lagged the Zacks Consensus Estimate of $0.79. However, the figure surpassed the year-ago tally of $0.26 per share.
Lower-than-expected results were primarily due to elevated levels of provision for loan losses. However, higher revenues and stable expenses were on the positive side. Moreover, capital ratios reflected improvement during the quarter.
Net income came in at $133 million or $0.65 per share, compared with $693 million or $3.61 per share in the prior-year quarter. The year-ago quarter figure included certain non-recurring items.
Higher Revenues, Expenses Stable
Net revenue was $848.2 million, up 15.3% year over year. On a non-GAAP basis, net revenue of $608.7 million grew 16.9% year over year, driven by a rise in both net finance revenue and other income. Further, the figure outpaced the Zacks Consensus Estimate of $622.3 million.
Net interest revenue was $210.7 million, up 33.9% from the prior-year quarter, mainly on account of higher interest income.
Total non-interest income was $637.5 million, an increase of 10.2% year over year. The rise reflected an increase in all income components.
Net finance margin decreased 4 basis points year over year to 3.63%.
Operating expenses (excluding restructuring costs and intangible assets amortization) of $323.3 million were almost in line with the prior-year quarter. Higher intangible asset amortization was offset by the fall in operating expenses and provision for severance and facilities exiting activities.
Credit Quality Improved
Net charge-offs were $23.4 million, down 61.8% from the prior-year quarter. Also, provision for credit losses was $46.2 million, down 7.4% year over year.
However, non-accrual loans increased 34.4% year over year to $288.5 million.
Healthy Balance Sheet and Capital Ratios
As of Sep 30, 2016, interest bearing cash and investment securities amounted to $10.1 billion, comprising $6.5 billion in cash and $3.6 billion in investment securities.
As of Sep 30, 2016, Common Equity Tier 1 and Total Capital ratios were 13.7% and 14.4%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 12.5% and 13.0% in the prior-year quarter. Book value per share was $55.62 as of the same date, up from $53.74 as of Sep 30, 2015.
Outlook
CIT Group expects other income to continue to reap benefits from its strategic initiatives. Moreover, management expects net finance margin to trend towards 3.50% of average earning assets as legacy consumer mortgages continue to run-off and rental rates decline due to lease renewals.
The company’s implementation of $125 million cost-reduction program remains on track and management expects to complete 30% of the cost-control target by 2016 end. Nonetheless, the benefits of cost-reduction plan are expected to be offset by the strategic initiative costs, with the benefits are expected to accrue by 2017.
Further, management expects expenses (excluding the cost of strategic initiatives) to be approximately $300 million in the fourth quarter. However, the strategic initiatives related costs are expected to increase in the near-term as the company prepares for the sale of Commercial Air.
Management expects asset levels in the fourth quarter to be flat to down as it continues to select new originations and optimize portfolio with a focus on risk adjusted returns.
Also, the tax rate is anticipated to be in the low 30% range (excluding discrete items) and the cash tax to remain in the mid-to-high single digit.
Additionally, credit provision is expected to be in the high end of the range of 0.25–0.50% of the average earning assets, with variability.
In 2017, management expects portfolio yields to continue to decline, given the current market conditions.
In the rail business, the company expects utilization to fall in the low 90s, while it continues to expect the business to earn double-digit pre-tax ROE.
Management plans to transfer the Commercial Air business along with Business Air into discontinued operations in the fourth quarter.
2018 Guidance (Post Air Separation)
Management expects other income to be 0.60–0.75% of the average earning assets and net finance margin to lie in the range 3.00–3.50% of the company’s average earning assets. Further, operating expenses, excluding restructuring charges and intangible assets amortization, is expected to be in the range 1.9–2.2% of the average earning assets. Also, net efficiency ratio is projected to be in the low 50% range.
Notably, the tax rate is anticipated to be lower than 40%. Moreover, credit provisions are likely to be 0.25–0.50% of the average earning assets.
Also, the Common Equity Tier 1 ratio, based on fully phased-in Basel III estimates, is estimated to be around 10–11%. Additionally, management expects adjusted return on average tangible common equity to lie around 10%.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
VGM Scores
At this time, CIT Group's stock has a poor Growth Score of 'D', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable solely for value investors.
Outlook
The stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.
Image: Bigstock
Why Is CIT Group (CIT) Up 7.9% Since the Last Earnings Report?
It has been about a month since the last earnings report for CIT Group Inc. (DEL) . Shares have added about 7.9% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
CIT Group's Q3 Earnings Miss Estimates, Revenues Up
CIT Group announced third-quarter 2016 earnings from continuing operations of $0.73 per share, which lagged the Zacks Consensus Estimate of $0.79. However, the figure surpassed the year-ago tally of $0.26 per share.
Lower-than-expected results were primarily due to elevated levels of provision for loan losses. However, higher revenues and stable expenses were on the positive side. Moreover, capital ratios reflected improvement during the quarter.
Net income came in at $133 million or $0.65 per share, compared with $693 million or $3.61 per share in the prior-year quarter. The year-ago quarter figure included certain non-recurring items.
Higher Revenues, Expenses Stable
Net revenue was $848.2 million, up 15.3% year over year. On a non-GAAP basis, net revenue of $608.7 million grew 16.9% year over year, driven by a rise in both net finance revenue and other income. Further, the figure outpaced the Zacks Consensus Estimate of $622.3 million.
Net interest revenue was $210.7 million, up 33.9% from the prior-year quarter, mainly on account of higher interest income.
Total non-interest income was $637.5 million, an increase of 10.2% year over year. The rise reflected an increase in all income components.
Net finance margin decreased 4 basis points year over year to 3.63%.
Operating expenses (excluding restructuring costs and intangible assets amortization) of $323.3 million were almost in line with the prior-year quarter. Higher intangible asset amortization was offset by the fall in operating expenses and provision for severance and facilities exiting activities.
Credit Quality Improved
Net charge-offs were $23.4 million, down 61.8% from the prior-year quarter. Also, provision for credit losses was $46.2 million, down 7.4% year over year.
However, non-accrual loans increased 34.4% year over year to $288.5 million.
Healthy Balance Sheet and Capital Ratios
As of Sep 30, 2016, interest bearing cash and investment securities amounted to $10.1 billion, comprising $6.5 billion in cash and $3.6 billion in investment securities.
As of Sep 30, 2016, Common Equity Tier 1 and Total Capital ratios were 13.7% and 14.4%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 12.5% and 13.0% in the prior-year quarter. Book value per share was $55.62 as of the same date, up from $53.74 as of Sep 30, 2015.
Outlook
CIT Group expects other income to continue to reap benefits from its strategic initiatives. Moreover, management expects net finance margin to trend towards 3.50% of average earning assets as legacy consumer mortgages continue to run-off and rental rates decline due to lease renewals.
The company’s implementation of $125 million cost-reduction program remains on track and management expects to complete 30% of the cost-control target by 2016 end. Nonetheless, the benefits of cost-reduction plan are expected to be offset by the strategic initiative costs, with the benefits are expected to accrue by 2017.
Further, management expects expenses (excluding the cost of strategic initiatives) to be approximately $300 million in the fourth quarter. However, the strategic initiatives related costs are expected to increase in the near-term as the company prepares for the sale of Commercial Air.
Management expects asset levels in the fourth quarter to be flat to down as it continues to select new originations and optimize portfolio with a focus on risk adjusted returns.
Also, the tax rate is anticipated to be in the low 30% range (excluding discrete items) and the cash tax to remain in the mid-to-high single digit.
Additionally, credit provision is expected to be in the high end of the range of 0.25–0.50% of the average earning assets, with variability.
In 2017, management expects portfolio yields to continue to decline, given the current market conditions.
In the rail business, the company expects utilization to fall in the low 90s, while it continues to expect the business to earn double-digit pre-tax ROE.
Management plans to transfer the Commercial Air business along with Business Air into discontinued operations in the fourth quarter.
2018 Guidance (Post Air Separation)
Management expects other income to be 0.60–0.75% of the average earning assets and net finance margin to lie in the range 3.00–3.50% of the company’s average earning assets. Further, operating expenses, excluding restructuring charges and intangible assets amortization, is expected to be in the range 1.9–2.2% of the average earning assets. Also, net efficiency ratio is projected to be in the low 50% range.
Notably, the tax rate is anticipated to be lower than 40%. Moreover, credit provisions are likely to be 0.25–0.50% of the average earning assets.
Also, the Common Equity Tier 1 ratio, based on fully phased-in Basel III estimates, is estimated to be around 10–11%. Additionally, management expects adjusted return on average tangible common equity to lie around 10%.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
CIT Group Inc (DEL) Price and Consensus
CIT Group Inc (DEL) Price and Consensus | CIT Group Inc (DEL) Quote
VGM Scores
At this time, CIT Group's stock has a poor Growth Score of 'D', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is suitable solely for value investors.
Outlook
The stock has a Zacks Rank #4 (Sell). We are looking for a below average return from the stock in the next few months.