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CIT Group (CIT) Down 9.5% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for CIT Group Inc (CIT - Free Report) . Shares have lost about 9.5% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? 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 Q2 Earnings Improve Y/Y on Lower Costs

CIT Group’s second-quarter 2017 adjusted earnings from continuing operations of $0.68 per share compared favorably with adjusted earnings of $0.46 in the year-ago quarter.

Results benefitted from lower expenses and a fall in provision for credit losses. The quarter witnessed overall improvement in credit quality. However, a decline in revenues hurt the results to quite an extent.

Upon considering several non-recurring items, net income was $157 million or $0.85 per share, compared with $17 million or $0.08 per share in the prior-year quarter.

Revenues & Expenses Declined

Total net revenue (GAAP basis) was $604.8 million, reflecting a decline of 6.7% from the prior-year period.

Net interest revenue was $269 million, down 6.3% from the prior-year quarter. Also, total non-interest income was $335.8 million, reflecting a decline of 6.9% year over year.

Net finance margin decreased 56 basis points year over year to 3.07%.

Operating expenses (excluding restructuring costs and intangible assets amortization) were $286 million, down 2.5% from the prior-year quarter.

Credit Quality Improves

Net charge-offs were $27.7 million, down 19.5% from the prior-year quarter. Also, provision for credit losses was $4.4 million, decreasing 81.1% year over year.

Further, non-accrual loans decreased 2.9% year over year to $256.8 million.

Strong Balance Sheet, Capital Ratios Improved

As of Jun 30, 2017, interest bearing cash and investment securities amounted to $10.3 billion, comprising $4.8 billion in cash and $5.5 billion in investment securities.

As of Jun 30, 2017, Common Equity Tier 1 and Total Capital ratios were 14.4% and 16.2%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, compared with 13.4% and 14.0% in the prior-year quarter.

Second Half 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.

The company remains on track to achieve its expense saving targets from continuing operations by 2018 to $150 million.

Management expects AEA to be flat as the low-single digit growth in its core businesses will be offset by run-off in legacy portfolios.

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?

It turns out, fresh estimate flatlined during the past month. There has been two revision higher for the current quarter compared to one lower.

CIT Group Inc (DEL) Price and Consensus

 

VGM Scores

At this time, the stock has a poor Growth Score of F, however its Momentum is doing a bit better with an C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.




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