It has been about a month since the last earnings report for CIT Group (CIT - Free Report) . Shares have lost about 6.4% 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 the most recent earnings report in order to get a better handle on the important drivers.
CIT Group Reports Q1 Loss, Provisions Rise Significantly
CIT Group’s first-quarter 2020 adjusted loss per share was $2.43 against the Zacks Consensus Estimate for earnings of 83 cents. The reported figure excludes certain noteworthy items such as the impact of the Current Expected Credit Losses accounting methodology, goodwill impairment charges related to the OneWest Bank acquisition and merger-related costs in connection with the acquisition of Mutual of Omaha Bank.
Results were primarily hurt because of a significant increase in provisions. Moreover, higher expenses were an undermining factor. However, despite lower rates, net interest revenues witnessed growth. Also, non-interest income improved. The balance sheet position remained strong.
Net loss available to common shareholders (GAAP basis) was $628.1 million or $6.40 per share compared with net income available to common shareholders of $118.9 million or $1.18 per share recorded in the year-ago quarter.
Revenues Improve, Expenses Rise
Total net revenues (non-GAAP) were $496.4 million, up 6.5% year over year. Moreover, the figure surpassed the Zacks Consensus Estimate of $449 million.
Net interest revenues were $287.9 million, up 2.5% year over year.
Total non-interest income was $340.4 million, increasing 8.2% from the year-ago quarter. The rise was due to an increase in other non-interest income.
Net finance margin contracted 47 basis points to 2.73%.
Operating expenses (excluding noteworthy items and intangible asset amortization) were $309 million, up 14.4% from the prior-year quarter.
Credit Quality Deteriorates
Provision for credit losses increased significantly year over year from $33 million to $513.9 million. The rise primarily reflected the adverse impacts of the coronavirus pandemic and the effect of the Mutual of Omaha Bank acquisition.
Non-accrual loans increased 29.6% year over year to $385 million. Net charge-offs were $54 million, up 58.8% from the prior-year quarter.
Balance Sheet Strong, Capital Ratios Worsen
As of Mar 31, 2020, average interest bearing cash and investment securities amounted to $9.8 billion, comprising $1.8 billion in interest bearing cash, and $8 billion in investment securities and securities purchased under the agreement to resell.
As of Mar 31, 2020, Common Equity Tier 1 and Total Capital ratios (as calculated under the fully phased-in Regulatory Capital Rules) were 9.7% and 12.9%, respectively, compared with 12% and 14.8% at the end of the prior-year quarter.
Because of the uncertainties related to the impact of coronavirus, the company withdrew the full-year 2020 and medium-term ROTCE outlook that it provided earlier.
It now expects lease rates to re-price down 20% in 2020. Rail utilization is expected to decline to the mid-to-high 80% area over the next 12 months.
CET1 ratio is projected to be 10.5% in the near term.
How Have Estimates Been Moving Since Then?
Since the earnings release, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -112.37% due to these changes.
Currently, CIT has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise CIT has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.