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Loan Growth, Rising Rates to Aid Citizens' (CFG) Q4 Earnings

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Citizens Financial Group CFG is scheduled to report fourth-quarter 2018 results on Jan 18, before the market opens. The company is expected to witness year-over-year growth in revenues and earnings.

In the last reported quarter, this Providence, RI-based bank displayed organic growth. Continued rise in revenues and loan growth were the key highlights. Also, the company recorded rise in deposits. However, the results were partially offset by higher expenses and provisions.

Notably, Citizens Financial boasts an impressive surprise history. It surpassed earnings estimates in each of the trailing four quarters, the average beat being 3.6%.

Citizens Financial Group, Inc. Price and EPS Surprise


However, the company’s price performance has not been very impressive. Its shares have lost 2.8% in the past three months compared with 3.9% decline recorded by the industry.

Will the price performance improve post fourth-quarter earnings release? Let’s check which factors are expected to impact Citizens Financial’s earnings.

Factors at Play

Net Interest Income (NII) to Exhibit Growth: The fourth quarter witnessed commercial and industrial, and consumer loan growth, thus some support to NII is expected from this scenario.

Further, rise in earning assets is likely to boost interest income as well. The Zacks Consensus Estimate for average interest earning assets of $143.7 billion for the to-be-reported quarter indicates a 3.8% rise year over year.

In addition, margins are likely to expand due to the rising interest rates, further boosting NII. However, flattening of the yield curve during the quarter is likely to offset the benefit to some extent.

The consensus estimate of $1.17 billion for NII reflects 8.1% year-over-year growth.

Moreover, management expects 1-1.25% sequential average loan growth for the quarter. Further, expansion of 3-4 basis points is expected in margins.

Fee Income Might Increase: While rising interest rates are likely to have kept the trend of debt and equity issuance activities low in the fourth quarter as well, Citizens Financial might have bagged higher advisory and underwriting fees due to its solid business profile. The consensus estimate for capital market fees of $53 million indicates a 26.2% rise.

Also, the trend of consumer spending was strong during the quarter, which is likely to provide some support to the company’s top line. The consensus estimate for card fees of $61 million indicates an 8.9% increase.

Furthermore, the Zacks Consensus Estimate for foreign exchange and interest rate products fees is $33.5 million, reflecting year-over-year growth of 4.6%. Also, trust and investment services fees are expected to rise 5.9% year over year to $44.5 million.

However, with the rising interest rates, mortgage refinancing activities and fresh originations have been slowing down. Therefore, no major help is expected from this segment.

With improvement in most of the components of fee income, total non-interest income is expected to rise. The Zacks Consensus Estimate for non-interest income is $434 million, indicating 7.4% rise on a year-over-year basis.

Notably, management expects fee income to increase 5-7% sequentially with benefit from strong capital markets.

Controlled Expenses: Citizens Financial’s expenses are expected to continue declining due to its TOP IV efficiency initiative. Also, its self-funding revenue initiatives might help lower the efficiency ratio.

Credit Quality Might Improve: Citizens Financial’s credit quality is expected to improve during the quarter backed by an improving economy. Per the consensus estimate, non-performing loans and leases are likely to decline 2.6% year over year to $848 million.

Earnings Whispers

According to our quantitative model, we cannot conclusively predict an earnings beat for Citizens Financial in the upcoming results. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, which is not the case here as elaborated below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Citizens Financial is -0.09%.

Zacks Rank: The stock currently carries a Zacks Rank #3.

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 94 cents, which reflects year-over-year improvement of 32.4%. Also, the consensus estimate for sales of $1.6 billion indicates 7.9% growth from the prior-year quarter.

Stocks That Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

Huntington Bancshares Incorporated (HBAN - Free Report) is set to report earnings on Jan 24. The company has an Earnings ESP of +0.32% and it currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zions Bancorporation ZION has an Earnings ESP of +0.40% and currently carries a Zacks Rank of 3. The company is slated to release results on Jan 22.

New York Community Bancorp NYCB is slated to release results on Jan 30. It has an Earnings ESP of +5.26% and carries a Zacks Rank #3.

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