It has been about a month since the last earnings report for CIT Group Inc (DEL) . Shares have added about 4.9% 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 Q1 Earnings Beat Estimates, Costs Down
CIT Group’s first-quarter 2017 adjusted earnings from continuing operations of $0.54 per share surpassed the Zacks Consensus Estimate of $0.52. Also, the figure compared favorably with the year-ago quarter’s adjusted earnings of $0.28.
Better-than-expected results were primarily driven by higher net-interest revenue and lower expenses. Moreover, improvement in credit quality was a positive for the company. However, a decrease in non-interest income hurt the results to some extent.
After considering several non-recurring items, net income was $180 million or $0.88 per share, compared with net income of $146 million or $0.72 per share in the prior-year quarter.
Net Interest Revenue Improved, Expenses Declined
Total net revenue (GAAP basis) was $623 million, reflecting a decline of 2.2% from the prior-year period. However, the figure surpassed the Zacks Consensus Estimate of $495.2 million.
Net interest revenue was $292.6 million, up 1.6% from the prior-year quarter. However, total non-interest income was $330.4 million, reflecting a decline of 5.3% year over year.
Net finance margin decreased 10 basis points year over year to 3.57%.
Operating expenses (excluding restructuring costs and intangible assets amortization) were $290.6 million, down 4.2% from the prior-year quarter.
Credit Quality Improves
Net charge-offs were $27.5 million, down 14.1% from the prior-year quarter. Also, provision for credit losses was $49.7 million, down 44.5% year over year. Further, non-accrual loans decreased 5.3% year over year to $258.8 million.
Healthy Balance Sheet and Capital Ratios
As of Mar 31, 2017, interest bearing cash and investment securities amounted to $9.9 billion, comprising $5.4 billion in cash and $4.5 billion in investment securities.
As of Mar 31, 2017, Common Equity Tier 1 and Total Capital ratios were 14.3% and 15.1%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 13.1% and 13.7% in the prior-year quarter.
2017 Outlook
CIT Group expects other income to continue to reap benefits from its strategic initiatives and be in the 0.6–0.75% target range. Moreover, management expects net finance margin to trend toward 3.50% of AEA as high yielding portfolio run-off and Rail headwinds are partially offset by the benefits from increased rates.
However, in the second quarter of 2017, net finance margin is expected to be negatively impacted by $20-$25 million. This is because the company does not intend to use the cash proceeds from the Commercial Air sale for liability management until May.
Management expects portfolio yields to continue to decline, given the current market conditions. Notably, average renewal rate is expected to fall and come in the range of 20–30%.
The company remains on track to achieve its expense saving targets from continuing operations by 2018 to $150 million. This is up from the prior target of $125 million. The change was done to include the amount of indirect costs associated with Commercial Air, which are reported in continuing operations.
Management expects AEA to grow in the low single digits, given the mid-single digit growth in our core businesses will be partially offset by run-off in legacy portfolios and NSP.
For its Real Estate Finance portfolio, management expects overall asset growth to be relatively flat as new business offsets the run off in the legacy portfolio.
Notably, related to the Commercial Air sale, management expects to record $200 million of pre-tax gain in the second quarter of 2017. Also, $260 million of debt extinguishment and transaction costs will be incurred, of which $185 million will be recorded in continuing operations.
The company anticipates ongoing improvement in expenses to continue as cost reduction initiatives progress.
Also, the tax rate is anticipated to be in the mid 30% range (excluding discrete items).
Additionally, credit provision is expected to be within the targeted range of 0.25–0.50% of AEA, with variability.
2018 Guidance
Management expects other income to be 0.60–0.75% of the AEA 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 AEA. 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?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower. In the past month, the consensus estimate has shifted downward by 13% due to these changes.
CIT Group Inc (DEL) Price and Consensus
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', its Momentum is doing a bit better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% 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.
The company's stock is suitable for both momentum and value investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.
Image: Bigstock
CIT Group (CIT) Up 4.9% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for CIT Group Inc (DEL) . Shares have added about 4.9% 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 Q1 Earnings Beat Estimates, Costs Down
CIT Group’s first-quarter 2017 adjusted earnings from continuing operations of $0.54 per share surpassed the Zacks Consensus Estimate of $0.52. Also, the figure compared favorably with the year-ago quarter’s adjusted earnings of $0.28.
Better-than-expected results were primarily driven by higher net-interest revenue and lower expenses. Moreover, improvement in credit quality was a positive for the company. However, a decrease in non-interest income hurt the results to some extent.
After considering several non-recurring items, net income was $180 million or $0.88 per share, compared with net income of $146 million or $0.72 per share in the prior-year quarter.
Net Interest Revenue Improved, Expenses Declined
Total net revenue (GAAP basis) was $623 million, reflecting a decline of 2.2% from the prior-year period. However, the figure surpassed the Zacks Consensus Estimate of $495.2 million.
Net interest revenue was $292.6 million, up 1.6% from the prior-year quarter. However, total non-interest income was $330.4 million, reflecting a decline of 5.3% year over year.
Net finance margin decreased 10 basis points year over year to 3.57%.
Operating expenses (excluding restructuring costs and intangible assets amortization) were $290.6 million, down 4.2% from the prior-year quarter.
Credit Quality Improves
Net charge-offs were $27.5 million, down 14.1% from the prior-year quarter. Also, provision for credit losses was $49.7 million, down 44.5% year over year. Further, non-accrual loans decreased 5.3% year over year to $258.8 million.
Healthy Balance Sheet and Capital Ratios
As of Mar 31, 2017, interest bearing cash and investment securities amounted to $9.9 billion, comprising $5.4 billion in cash and $4.5 billion in investment securities.
As of Mar 31, 2017, Common Equity Tier 1 and Total Capital ratios were 14.3% and 15.1%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 13.1% and 13.7% in the prior-year quarter.
2017 Outlook
CIT Group expects other income to continue to reap benefits from its strategic initiatives and be in the 0.6–0.75% target range. Moreover, management expects net finance margin to trend toward 3.50% of AEA as high yielding portfolio run-off and Rail headwinds are partially offset by the benefits from increased rates.
However, in the second quarter of 2017, net finance margin is expected to be negatively impacted by $20-$25 million. This is because the company does not intend to use the cash proceeds from the Commercial Air sale for liability management until May.
Management expects portfolio yields to continue to decline, given the current market conditions. Notably, average renewal rate is expected to fall and come in the range of 20–30%.
The company remains on track to achieve its expense saving targets from continuing operations by 2018 to $150 million. This is up from the prior target of $125 million. The change was done to include the amount of indirect costs associated with Commercial Air, which are reported in continuing operations.
Management expects AEA to grow in the low single digits, given the mid-single digit growth in our core businesses will be partially offset by run-off in legacy portfolios and NSP.
For its Real Estate Finance portfolio, management expects overall asset growth to be relatively flat as new business offsets the run off in the legacy portfolio.
Notably, related to the Commercial Air sale, management expects to record $200 million of pre-tax gain in the second quarter of 2017. Also, $260 million of debt extinguishment and transaction costs will be incurred, of which $185 million will be recorded in continuing operations.
The company anticipates ongoing improvement in expenses to continue as cost reduction initiatives progress.
Also, the tax rate is anticipated to be in the mid 30% range (excluding discrete items).
Additionally, credit provision is expected to be within the targeted range of 0.25–0.50% of AEA, with variability.
2018 Guidance
Management expects other income to be 0.60–0.75% of the AEA 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 AEA. 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?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one revision higher for the current quarter compared to three lower. In the past month, the consensus estimate has shifted downward by 13% due to these changes.
CIT Group Inc (DEL) Price and Consensus
CIT Group Inc (DEL) Price and Consensus | CIT Group Inc (DEL) Quote
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', its Momentum is doing a bit better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% 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.
The company's stock is suitable for both momentum and value investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.