A month has gone by since the last earnings report for CIT Group (CIT - Free Report) . Shares have lost about 0.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is CIT 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 Q3 Earnings Meet Estimates, Revenues Down Y/Y
CIT Group’s third-quarter 2019 adjusted earnings from continuing operations of $1.29 per share were in line with the Zacks Consensus Estimate. The figure compared favorably with the prior-year quarter’s adjusted earnings from continuing operations of $1.15.
Results benefited from a decline in provisions. Moreover, the balance sheet position remained strong. However, rise in expenses along with lower revenues hurt results to quite an extent.
Net income available to common shareholders (GAAP basis) was $142.8 million or $1.50 per share, up from $131.5 million or $1.15 per share in the prior-year quarter.
Revenues Decline, Expenses Rise
Total net revenues (non-GAAP) were $454.3 million, down 4.5% year over year. Moreover, the figure lagged the Zacks Consensus Estimate of $469 million.
Net interest revenues were $259.5 million, down marginally year over year.
Total non-interest income was $312.7 million, decreasing 10.8% from the year-ago quarter.
Net finance margin contracted 37 basis points to 3.06%.
Operating expenses (excluding noteworthy items and intangible asset amortization) were $261 million, up 1.6% from the prior-year quarter.
Credit Quality Improves
Provision for credit losses was $26.6 million, down 30.2% from the year-ago quarter. Also, non-accrual loans declined 6.3% to $298 million.
Net charge-offs were $26 million, on par with the prior-year quarter.
Balance Sheet Strong, Capital Ratios Worsen
As of Sep 30, 2019, interest bearing cash and investment securities amounted to $9.1 billion, comprising $1.4 billion in interest bearing cash, and $7.7 billion in investment securities and securities purchased under the agreement to resell.
As of Sep 30, 2019, Common Equity Tier 1 and Total Capital ratios (as calculated under the fully phased-in Regulatory Capital Rules) were 11.6% and 14.3%, respectively, down from 12.4% and 15.1% in the prior-year quarter end.
Share Repurchase Update
During the reported quarter, CIT Group repurchased $341 million worth of shares.
Management expects core and total average loans and leases to increase at a low-single-digit rate.
Net finance margin is projected to be in the 2.90-3.00% range.
Core operating expenses (excluding intangible assets amortization) are projected to be flat or decrease marginally on a sequential basis.
Further, net efficiency ratio (including the impact of the accounting changes) is projected to be in the mid 50% range.
Net charge-offs are anticipated to be in the low end of the 0.35-0.45% range.
The effective tax rate is expected to be 25-26% (excluding discrete items).
Common Equity Tier 1 (CET1) ratio, based on fully phased-in Basel III estimates, is projected to in the mid-to-high 11% range. Further, return on average tangible common equity (ROTCE) is expected to be 9.5-10%.
Management expects core average loans and leases to increase at mid-single-digit growth rate, while total loans and leases are projected to rise in low-single digit rate.
Moreover, net finance margin is projected to be at the low end of 3.10-3.30% range.
Further, core operating expenses (excluding intangible assets amortization) are projected to decline nearly 3%, excluding the impact of changes in accounting rules. After considering these changes, operating expenses will likely increase 1-2% annually.
Net efficiency ratio is projected to be in the mid 50% range.
Net charge-offs are anticipated to be 0.35-0.45%.
The effective tax rate is anticipated to be 25-26% (excluding discrete items).
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, CIT has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. 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 indicates a downward shift. Notably, CIT has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.