Providence, R.I.-based Citizens Financial Group, Inc. (CFG) operates as the bank holding company for Citizens Bank, which provides retail and commercial banking products and services in the United States.

CFG shares have gained 38.4% in price over the past year and 24.2% over the past six months. The stock has gained 20.3% over the past month to close yesterday’s trading session at $55.70.

In its most recent earnings report, the company’s total revenues were $1.66 billion, indicating a 7% decline year-over-year. Furthermore, its net interest margin also declined, reflecting the impact of elevated cash balances and the lower rate environment, while its noninterest income was also down for the period. CFG cited the COVID-19 pandemic for having affected loan demand in the second half of 2021. Furthermore, Wall Street expects a year-over-year decline in CFG’s revenues for the quarter ended December 31, 2021.

Here is what could shape CFG’s performance in the near term:

Strategic Acquisitions

In November, CFG announced the completion of its acquisition of JMP Group LLC. The capital markets firm provides investment banking services, including strategic advisory, equity research, and sales and trading focused primarily on the healthcare, technology, financial services, and real estate sectors. CFG is aiming to expand its M&A advisory team. Last month, CFG agreed to purchase all the assets of DH Capital LLC, a private investment banking firm that serves companies that provide Internet infrastructure, software and next-generation IT services, and the communications sectors. With a record of more than 200 merger and acquisition transactions totaling approximately $35 billion in value, DH Capital is expected to strengthen CFG’s corporate advisory capabilities.

In addition, CFG is expected to close the acquisition of HSBC’s East Coast branches and national online deposit business in the first quarter of 2022. “With a sizable customer base and a solid deposit franchise, this acquisition will serve as a springboard for our consumer national expansion strategy,” said CFG Chairman and CEO Bruce Van Saun.

Mixed Analysts Estimates

The Street expects CFG’s company’s revenues to be $1.66 billion in its fiscal quarter ended December 31, 2021, indicating a 2.9% decline year-over-year. And its revenue is expected to decline 4.6% year-over-year in fiscal 2021. However, analysts expect a 12.6% increase in revenues in the current fiscal. Analysts also expect CFG’s EPS to rise 14.1% in the quarter ended December 31, 2021, and 132.9% in its fiscal 2021. But it is expected to decrease 29.2% in the current quarter and 18.2% in fiscal 2022. Also, its EPS is expected to decline 2.8% per annum over the next five years.

Mixed Profitability

CFG’s 32.56% net income margin is 8.2% higher than the 30.08% industry average. And its 2.57% CAPEX/Sales is 58% higher than the 1.63% industry average.

However, CPG’s 10.17% and 1.20% respective ROE and ROA are 20.2% and 11.3% lower than the industry averages.

Mixed Financials

CFG reported an underlying net income of $546 million, up 62% year-over-year, while its underlying EPS came in at $1.22, indicating a 67% increase from its year-ago value. Its noninterest income decreased 21% year-over-year to $514 million, driven mainly by a $179 million fall in mortgage banking fees due to lower gain-on-sale margins and production volumes and an $11 million decline in other income. Its net interest income stood at $1.145 billion, up marginally from the same period last year, reflecting a 4% growth in interest-earning assets, which was offset primarily by a lower net interest margin.

POWR Ratings Reflect Uncertain Prospects

CFG has an overall C rating, which translates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Quality, which is consistent with its mixed profitability.

CFG also has a C grade for Sentiment. Mixed analyst sentiment about the stock justifies this grade.

Of 33 stocks in the Mid-Atlantic Regional Banks group, CFG is ranked #15.

Beyond what I have stated above, one can also view CFG’s grades for Value, Growth, Momentum, and Stability here.

View the top-rated stocks in the Mid-Atlantic Regional Banks group here.

Bottom Line

CFG has gained investors’ attention over the past few months due to its prominent M&A deals. However, its lean profit margins and bleak top-line growth could be concerning. Also, it might take some time before its acquired companies boost its fundamentals. And mixed analysts’ sentiments about the stock raise uncertainty in its near-term prospects. Thus, we think it could be wise to wait for a better entry point in the stock.

How Does Citizens Financial Group, Inc. (CFG) Stack Up Against its Peers?

While CFG has an overall POWR Rating of C, one might want to consider looking at its industry peers, First Bank (FRBA), which has an A (Strong Buy) rating, and C&F Financial Corporation (CFFI) and CNB Financial Corporation (CCNE), which have a B(Buy) rating.

CFG shares fell $0.20 (-0.36%) in premarket trading Friday. Year-to-date, CFG has gained 17.88%, versus a -2.20% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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