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Here's Why You Should Hold Citizens Financial (CFG) Stock Now
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Citizens Financial Group (CFG - Free Report) has been making inorganic moves to diversify its presence and businesses. This is backed by the company’s decent liquidity position. However, continued cost escalations are limiting its bottom-line growth, while the low interest rate environment is affecting the net interest margin (NIM).
In early September, the company clinched a definitive merger agreement with JMP Group LLC in an all-cash transaction. This marks the company’s fourth purchase since May. The company also closed the acquisition of Willamette Management Associates, which is expected to amplify Citizens Financial’s corporate financial advisory competencies.
As part of its depository acquisitions advance strategy, In July, Citizens Financial announced a definitive agreement to acquire Investors Bancorp, Inc., , and entered an agreement to acquire 80 East Coast branches and the national online deposit business from HSBC Bank U.S.A, N.A — the America subsidiary of the U.K.-based HSBC Holdings plc (HSBC - Free Report) — in May. The acquisitions of Investors combined with HSBC create a strong franchise in the greater New York City and the Philadelphia Metro areas, and New Jersey by adding 234 branches. Apart from this, the move is expected to add $29 billion of deposits and $24 billion of loans, creating a strong foundation for revenue growth.
The company’s organic growth measures also remain encouraging. Citizens Financial’s loans and deposits witnessed a compound annual growth rate (CAGR) of 3.4% and 7.6%, respectively, over the last five years (2016-2020). We believe that it is well-positioned to grow further, backed by gradually improving the U.S. economy.
Citizens Financial also remains on track for the execution of its revenue and efficiency initiatives. The most recent “Tapping Our Potential” (TOP) program — TOP 6 — is expected to deliver $400-$425 million in pre-tax run-rate benefit by 2021 end. Identifying better transformational efficiency opportunities, it is now developing the TOP 7 Program. These efforts are likely to result in expense savings and alleviate the bottom-line pressure.
However, the company’s NIM has been shrinking due to the decline in the interest rates to the near-zero level in 2019 and 2020 in order to protect the economy from the coronavirus-led mayhem. Notably, the declining trend continued in the first six months of 2021. Despite decent loan demand, NIM is expected to continue being impacted in the near term due to the Federal Reserve’s accommodative policy stance.
A significant portion of Citizens Financial’s loan portfolio comprises majorly commercial and real estate loans (72% of loans and leases and loans held for sale as of Jun 30, 2021). Such lack of diversification and high exposure can be risky for the company if the real estate sector weakens.
Lastly, Citizens Financial’s non-interest expenses witnessed a CAGR of 4.5% over the last five years (2016-2020), with an increasing trend in the first six months of this year. Costs are likely to remain elevated due to investments in newer technologies and building fee income capabilities organically.
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Here's Why You Should Hold Citizens Financial (CFG) Stock Now
Citizens Financial Group (CFG - Free Report) has been making inorganic moves to diversify its presence and businesses. This is backed by the company’s decent liquidity position. However, continued cost escalations are limiting its bottom-line growth, while the low interest rate environment is affecting the net interest margin (NIM).
In early September, the company clinched a definitive merger agreement with JMP Group LLC in an all-cash transaction. This marks the company’s fourth purchase since May. The company also closed the acquisition of Willamette Management Associates, which is expected to amplify Citizens Financial’s corporate financial advisory competencies.
As part of its depository acquisitions advance strategy, In July, Citizens Financial announced a definitive agreement to acquire Investors Bancorp, Inc., , and entered an agreement to acquire 80 East Coast branches and the national online deposit business from HSBC Bank U.S.A, N.A — the America subsidiary of the U.K.-based HSBC Holdings plc (HSBC - Free Report) — in May. The acquisitions of Investors combined with HSBC create a strong franchise in the greater New York City and the Philadelphia Metro areas, and New Jersey by adding 234 branches. Apart from this, the move is expected to add $29 billion of deposits and $24 billion of loans, creating a strong foundation for revenue growth.
The company’s organic growth measures also remain encouraging. Citizens Financial’s loans and deposits witnessed a compound annual growth rate (CAGR) of 3.4% and 7.6%, respectively, over the last five years (2016-2020). We believe that it is well-positioned to grow further, backed by gradually improving the U.S. economy.
Citizens Financial also remains on track for the execution of its revenue and efficiency initiatives. The most recent “Tapping Our Potential” (TOP) program — TOP 6 — is expected to deliver $400-$425 million in pre-tax run-rate benefit by 2021 end. Identifying better transformational efficiency opportunities, it is now developing the TOP 7 Program. These efforts are likely to result in expense savings and alleviate the bottom-line pressure.
Shares of this Zacks Rank #3 (Hold) company have rallied 26.9% over the past six months compared with the industry’s growth of 15.2%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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However, the company’s NIM has been shrinking due to the decline in the interest rates to the near-zero level in 2019 and 2020 in order to protect the economy from the coronavirus-led mayhem. Notably, the declining trend continued in the first six months of 2021. Despite decent loan demand, NIM is expected to continue being impacted in the near term due to the Federal Reserve’s accommodative policy stance.
A significant portion of Citizens Financial’s loan portfolio comprises majorly commercial and real estate loans (72% of loans and leases and loans held for sale as of Jun 30, 2021). Such lack of diversification and high exposure can be risky for the company if the real estate sector weakens.
Lastly, Citizens Financial’s non-interest expenses witnessed a CAGR of 4.5% over the last five years (2016-2020), with an increasing trend in the first six months of this year. Costs are likely to remain elevated due to investments in newer technologies and building fee income capabilities organically.