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Jun 10, 2024 |
CIT Group Inc. (NA: CIT)NA |
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Data Overview
| Value Score | NA |
|---|---|
| P/E (F1) | NA |
| P/E (F1) Rel to Industry | NA |
| PEG Ratio | NA |
| P/S (F1) | NA |
| P/S (TTM) | NA |
| P/CFO | NA |
| P/CFO Rel to Industry | NA |
| EV/EBITDA Annual | NA |
| Growth Score | NA |
|---|---|
| Proj. EPS Growth (F1/F0) | NA |
| Hist. EPS Growth (Q0/Q-1) | NA |
| Qtr CFO Growth | NA |
| 2 Yr CFO Growth | NA |
| Return on Equity (ROE) | NA |
| (NI - CFO) / Total Assets | NA |
| Asset Turnover | NA |
| Momentum Score | NA |
|---|---|
| 1 week Volume change | NA |
| 1 week Price Cng Rel to Industry | NA |
| (F1) EPS Est 1 week change | NA |
| (F1) EPS Est 4 week change | NA |
| (F1) EPS Est 12 week change | NA |
| (Q1) EPS Est 1 week change | NA |
Summary
Shares of CIT Group have outperformed the industry over the past twelve months. The company has surpassed the Zacks Consensus Estimate for earnings in three of the trailing four quarters. Its third-quarter 2017 results were aided by lower expenses and a fall in provisions. The company's business streamlining initiatives should improve efficiency, going forward. Also, given a solid capital and balance sheet position, the company is expected to continue to enhance shareholder value through efficient capital deployment activities. However, mounting expenses, worsening credit quality and sluggish growth in the industries where CIT Group provides finance continue to be key near-term concerns.
Elements of the Zacks Rank
Agreement Estimate Revisions (60 days)
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0% Q1 (Current Qtr)Revisions: NA Up: NA Down: NA |
0% Q2 (Next Qtr)Revisions: NA Up: NA Down: NA |
0% F1 (Current Year)Revisions: NA Up: NA Down: NA |
0% F2 (Next Year)Revisions: NA Up: NA Down: NA |
Magnitude Consensus Estimate Trend (60 days)
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Upside Zacks Consensus Estimate vs. Most Accurate Estimate
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Surprise Reported Earnings History
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Average 4 Qtr Surprise |
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The data on the front page and all the charts in the report represent market data as of , while the report's text is as of 10/27/2017
Overview
Founded in 1908 and incorporated as a Delaware Corporation, CIT Group Inc. offers commercial financing and leasing products and other services to small and middle-market businesses. The company provides its products and services across a wide spectrum of industries, mainly in transportation, aerospace and rail, and manufacturing and retail.
In November 2009, CIT Group filed pre-packaged voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. Notably, the company emerged from bankruptcy in December 2009. Since then the company has been striving to gain its foothold.
CIT Group operates through the following segments:
- The Commercial Banking segment comprises four divisions – Commercial Finance, Real Estate Finance, Business Capital and Rail. The segment offers lending, leasing and deposit products, as well as ancillary products and services, including factoring, cash management and advisory services, primarily to small and medium-sized companies, as well as to the rail industry.
- The Consumer Banking includes Legacy Consumer Mortgages and Other Consumer Banking divisions. The segment provides consumer deposit products and residential mortgage product offerings
- The Non-Strategic Portfolios segment includes portfolios that are not core to the company’s operations.
- The Corporate and Other segment consists of investments and other unallocated items.
In April 2017, CIT Group sold its aircraft leasing business, CIT Commercial Air, to Avolon Holdings Limited. It also completed the sale of its 30% stake in the joint ventures with Tokyo Century Corporation. Earlier in 2016, CIT Group sold its Canadian units to Laurentian Bank.
In 2015, the company completed the acquisition of OneWest.
Reasons To Buy:
CIT Group's efforts to restructure and streamline operations with an aim to become a leading national middle-market bank are impressive. Its enhanced capital deployment plans are commendable.
Amid a changing and challenging operating environment, CIT Group has been streamlining its operations with a goal to simplify operations and improve efficiency. Recently, in October, the company inked a deal to sell Financial Freedom and the reverse mortgage portfolio to an undisclosed buyer with an aim to exit reverse mortgage operations. Earlier, in June, the company announced a deal to sell its European Rail business, while in April the company sold stakes in the joint ventures with Tokyo Century Corporation and divested its aircraft leasing business. Over the last few years, the company has divested its Canadian, Brazilian and Mexican businesses, among others. These divestitures are part of the company’s strategy to become a regional commercial banking institution.
CIT Group has come a long way since its emergence from bankruptcy in 2009. Now steady enough to expand inorganically, the company completed the acquisition of OneWest in August 2015. Post completion, CIT Group has become a $50 billion-plus company. Also, the company is well positioned to meet the additional regulatory requirements associated with being the “systematically important financial institution” as well as grow organically.
CIT Group’s 2017 capital plan was approved by the Fed in June. It includes a 6.7% dividend hike and $225 million share repurchase authorization (through the third quarter of 2018). The company is well positioned to deploy capital meaningfully, given its lower dividend payout ratio compared with the industry average.
CIT Group has been aggressively restructuring its balance sheet through repayment and refinancing of high-cost debt. Apart from lowering the funding cost, the initiative continues to support net finance margin growth, which the company projects to be nearly 3.50% in the near term. With an improvement in the overall economy, demand for financing of inventories and capital equipment will rise, thereby enabling CIT Group to enhance its average earnings asset (AEA).
Shares of CIT Group have gained 31.2% in a year’s time, outperforming 24.6% growth for the industry. Also, the company’s current-year earnings estimate has been revised upward over the past 60 days. Moreover, if we compare its current price-to-book ratio with the respective industry average, the stock seems undervalued. Further, it has a Value Score of B. Given the strong fundamentals and upward estimate revisions, the stock is expected to gain further.
Risks
- Mounting operating expenses is a major concern at CIT Group. Operating expenses have risen at a 5-year (2012–2016) CAGR of 7.5%, mainly due to higher compensation costs and professional fees. A similar trend continued during the first nine months of 2017 as well. Despite taking cost savings measures, expenses are expected to increase due to the company’s strategic plan and continued investments in the franchise.
- Deteriorating credit quality is another cause of concern for CIT Group. Though provisions fell in the first nine months of 2017 (mainly due to lower loan balances), over the last few years, asset quality metrics have been trending up. Provision for credit losses increased at a 5-year (2012–2016) CAGR of 39.5%. As the company intends to become a leading national middle-market bank, rise in loan balances will likely lead to higher provisions.
- CIT Group provides nearly 65% of its total lending to commercial airlines, manufacturing, real estate, transportation and service industries. Sluggish growth or any other contingencies in any of these sectors could hamper the company’s prospects as the borrowers may not be able to make timely payments of loans and interest.
- Further, CIT Group’s trailing 12-month return on equity (ROE) undercuts its growth potential. The company’s ROE of 5.89% has improved over the years. However, it compares unfavorably with ROE of 17.52% for the industry, reflecting that it is less efficient in using shareholder funds.
Last Earnings Report
Quarter Ending
| Report Date | NA |
|---|---|
| Sales Surprise | NA |
| EPS Surprise | NA |
| Quarterly EPS | NA |
| Annual EPS (TTM) | NA |
CIT Group’s Q3 Earnings Improve Y/Y on Lower Costs
CIT Group’s third-quarter 2017 adjusted earnings from continuing operations of $1.02 per share beat the Zacks Consensus Estimate of 84 cents. Further, the reported figure was up 88.9% year over year.
Lower expenses and a fall in provision for credit losses helped the company deliver exceptional results. A strong balance sheet lent further support.
However, a decline in revenues hurt results to quite an extent.
Upon considering several non-recurring items, net income was $220 million or $1.61 per share compared with $131 million or 65 cents per share in the prior-year quarter.
Revenues and Expenses Decline
Total net revenues (GAAP basis) were $593 million, reflecting a decline of 5% from the prior-year period. However, the figure surpassed the Zacks Consensus Estimate of $488 million.
Net interest revenues were $277 million, down 4% from the prior-year quarter. Also, total non-interest income was $316 million, reflecting a decline of 7% year over year.
Net finance margin decreased 2 basis points year over year to 3.53%.
Operating expenses (excluding restructuring costs and intangible assets amortization) were $268 million, down 9% from the prior-year quarter.
Credit Quality: A Mixed Bag
Net charge-offs were $42 million, 96% higher than the prior-year quarter.
Provision for credit losses came in at $30 million, decreasing 33% year over year. Further, non-accrual loans decreased 7% year over year to $265 million.
Balance Sheet Strengthens, Capital Ratios Deteriorate
As of Sep 30, 2017, interest bearing cash and investment securities amounted to $8.4 billion, comprising $2.7 billion in cash and $5.7 billion in investment securities.
As of Sep 30, 2017, Common Equity Tier 1 and Total Capital ratios were 14% and 15.7%, respectively, as calculated under the fully phased-in Regulatory Capital Rules, comparing unfavorably with 14.4% and 16.2% in the prior quarter.
Fourth-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% of AEA target range. Moreover, management expects net finance margin to trend toward the middle of the range between 3%-3.50% of AEA as purchase accounting accretion run-off and Rail headwinds are partially offset by the benefits from investment securities portfolio.
Also, the tax rate is anticipated to be in the low-to-mid 30% range (excluding discrete items).
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 AEA.
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%.
Recent News
CIT Group to Sell Financial Freedom & Exit Reverse Mortgage — Oct 6, 2017
In yet another step toward its initiatives to simplify operations and become a regional commercial banking institution, CIT Group inked a deal to sell Financial Freedom and the reverse mortgage portfolio to an undisclosed buyer. The transaction will enable the company to exit reverse mortgage operations.
Financial Freedom became part of CIT Group when the latter acquired OneWest Bank in August 2015. The unit has been part of the company’s discontinued operation since then.
Transaction Details
The deal comprises sale of mortgage servicing rights and nearly $900 million worth of reverse mortgage whole loans (including other real estate loans) as of Jun 30, 2017. The financial terms of the transaction were not revealed.
CIT Group expected the deal, still subject to regulatory and investors approval, to close by mid-2018.
CIT Group Further Simplifies, To Sell European Rail Business — Jun 30, 2017
As part of its strategy to simplify operations and become a regional commercial banking institution, CIT Group announced a deal to sell its European rail leasing operation, NACCO Group to German-based VTG Aktiengesellschaft. The transaction will include roughly 14,000 rail freight cars.
The deal value comprises sale price of €780 million ($890 million) plus investments made in the freight cars since the beginning of the year till deal closure, which is projected to be €140 million ($160 million). Subject to customary closing conditions, the transaction is anticipated to close in fourth-quarter 2017.
Notably, the deal will not affect CIT Group’s rail operations in Northern America. Based in Paris, NACCO was the company’s last remaining international operation. The company had acquired this business in Feb 2014.
Chairwoman and Chief Executive Officer Ellen R. Alemany said, “This transaction represents another step in our evolution to simplify the company and focus on our core businesses. As part of our transformation, CIT has been divesting its international operations and centering on its core commercial banking franchises, which are largely domestic.”
Dividend Update
On Oct 16, CIT Group announced a quarterly dividend of 16 cents per share, a hike of 6.7% from the prior payout. The dividend will be paid on Nov 24 to shareholders of record as of Nov 10.
Industry Analysis(1)Zacks Industry Rank: NA
Industry Comparison NA | NA |
Industry Peers |
| CIT NA | |
|---|---|
| Market Cap | NA |
| # of Analysts | NA |
| Dividend Yield | NA |
| Value Score | NA |
| Cash/Price | NA |
| EV/EBITDA | NA |
| PEG Ratio | NA |
| Price/Book (P/B) | NA |
| Price/Cash Flow (P/CF) | NA |
| P/E (F1) | NA |
| Price/Sales (P/S) | NA |
| Earnings Yield | NA |
| Debt/Equity | NA |
| Cash Flow ($/share) | NA |
| Growth Score | NA |
| Hist. EPS Growth (3-5 yrs) | NA |
| Proj. EPS Growth (F1/F0) | NA |
| Curr. Cash Flow Growth | NA |
| Hist. Cash Flow Growth (3-5 yrs) | NA |
| Current Ratio | NA |
| Debt/Capital | NA |
| Net Margin | NA |
| Return on Equity | NA |
| Sales/Assets | NA |
| Proj. Sales Growth (F1/F0) | NA |
| Momentum Score | NA |
| Daily Price Chg | NA |
| 1 Week Price Chg | NA |
| 4 Week Price Chg | NA |
| 12 Week Price Chg | NA |
| 52 Week Price Chg | NA |
| 20 Day Average Volume | NA |
| (F1) EPS Est Wkly Chg | NA |
| (F1) EPS Est Mthly Chg | NA |
| (F1) EPS Est Qtrly Chg | NA |
| (Q1) EPS Est Mthly Chg | NA |
| Industry | S&P 500 |
|---|---|
| 0.00 M | 33.94 B |
| 18 | |
| % | 1.58% |
| - | - |
| NA | 0.04 |
| NA | 14.63 |
| NA | 2.14 |
| NA | 3.34 |
| NA | 13.54 |
| NA | 18.26 |
| NA | 2.70 |
| NA% | 5.47% |
| NA | 0.62 |
| NA | 8.64 |
| - | - |
| NA% | 9.87% |
| NA% | 7.49% |
| NA% | 3.70% |
| NA% | 6.81% |
| NA | 1.22 |
| NA% | 39.29% |
| NA% | 11.99% |
| NA% | 16.63% |
| NA | 0.54 |
| % | 3.99% |
| - | - |
| NA% | -0.11% |
| NA% | 1.32% |
| NA% | 2.38% |
| NA% | 4.49% |
| NA% | 24.38% |
| 0 | 2,016,919 |
| NA% | 0.00% |
| NA% | 0.00% |
| NA% | 0.36% |
| NA% | 0.00% |
Zacks Stock Rating System
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Zacks Recommendation
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