A month has gone by since the last earnings report for CIT Group . Shares have added about 2.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is CIT 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 catalysts.
CIT Group Q1 Earnings Beat on Reserve Releases
CIT Group’s first-quarter 2021 adjusted earnings per share of $2.47 surpassed the Zacks Consensus Estimate of 98 cents by a considerable margin. In the prior-year quarter, the company had incurred adjusted loss of $2.43 per share.
Results benefited from substantial reserve releases and lower expenses. Further, the balance sheet position remained strong. However, a fall in revenues hurt results.
After considering noteworthy items, net income available to common shareholders (GAAP basis) was $301 million or $3.04 per share against net loss of $628 million or $6.40 per share incurred in the year-ago quarter.
Revenues & Expenses Down
Total net revenues (non-GAAP and excluding noteworthy items) were $473.8 million, down 4.6% year over year.
Net interest revenues were $268.5 million, declining 6.7% year over year.
Total non-interest income was $424.6 million, jumping 24.7%. The rise was due to an improvement in other non-interest income.
Net finance margin contracted 27 basis points year over year to 2.46%.
Operating expenses (excluding noteworthy items and intangible asset amortization) were $258.7 million, down 16.2%.
Credit Quality: Mixed Bag
The company recorded net provision benefit of $117.4 million against provision of $513.9 million in the year-earlier quarter. Also, net charge-offs were $13 million, plunging 75.9% year over year.
However, non-accrual loans surged 74.1% year over year to $665 million.
Balance Sheet Strong, Capital Ratios Improve
As of Mar 31, 2021, average interest-bearing cash and investment securities amounted to $10.79 billion, comprising $4.63 billion in interest-bearing cash, and $6.14 billion in investment securities and securities purchased under the agreement to resell.
As of Mar 31, 2021, Common Equity Tier 1 and Total Capital ratios (as calculated under the fully phased-in Regulatory Capital Rules) were 10.9% and 14.2%, respectively, compared with 9.7% and 12.9% at the end of the prior-year quarter.
Second-Quarter 2021 Outlook
Given lower deposit costs, partly offset by lower purchase accounting adjustment and the absence of rail settlement benefits, NFM is expected to improve marginally on a sequential basis.
Other non-interest income is expected to decline slightly on a sequential basis.
Average loans and leases are expected to be down 2-3% on a sequential basis, with the runoff of the Legacy Consumer Mortgages (LCM) portfolio. Further, the company plans to continue to opportunistically sell LCM assets as part of its portfolio-management and de-risking activities.
Operating expenses, excluding noteworthy items and intangible asset amortization, are anticipated to be up marginally.
Net charge-offs are expected to move up from the current low levels and normalize at annualized 35-45 bps.
Capital levels are expected to continue to improve with earnings and lower loan balances.
Effective tax rate (excluding discrete items) is anticipated to be 27%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 22.45% due to these changes.
At this time, CIT has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, CIT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.