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Will Citizens Financial (CFG) Disappoint in Q1 Earnings?


Citizens Financial Group, Inc. CFG is scheduled to report first-quarter 2017 results on Apr 20, before the market opens.

The Providence, RI-based bank’s fourth-quarter 2016 reported a positive earnings surprise of 3.8%, beating the Zacks Consensus Estimate. Organic growth was reflected in the quarter with continued rise in loan as well as deposit balances, aiding higher revenues. On the downside, the company recorded increased expenses and provisions.

Despite an improvement in the rate scenario and investors' growing optimism following the Presidential election, Citizens Financial’s price performance remained disappointing in the recently concluded quarter. Shares of the company fell nearly 3% in the three-month period ended Mar 31, 2017.

However, the company boasts an impressive earnings surprise history as depicted in the chart below:

Let’s see how things have shaped up prior to this announcement.

What to Expect in Q1?

Muted Loan Growth: While management expects average loan growth of around 1.5% on a sequential basis, despite easing lending standards a number of times last year, overall loan growth has been sluggish in the quarter. Commercial banks witnessed the weakest loan growth in five years. While growth in consumer loans remained strong, commercial and industrial credit growth shrunk significantly. As expanding loans was one of the major ways to offset margin pressure for banks, including Citizens Financial, first-quarter 2017 results might display considerable revenue pressure.

Pressure on Net Interest Margin (NIM) Might Ease: Though the prolonged low-rate environment has taken a toll on the bank’s margins over the past several quarters, the Fed’s recent rate hike for the third time, since the financial crisis, and its commitment to raise rates faster (two more times) this year, based on a convincing pace of economic growth, should help banks get rid of shrinking margins. Notably, management anticipates NIM to improve 2–3 basis points in first-quarter 2017 on a sequential basis.

Increase in expenses: Management projects a modest rise in expenses, on a sequential basis, due to seasonality. However, there were no major outflows related to legal settlements that might impact the firm’s earnings unusually in the to-be-reported quarter.

Fee income to Decline: Fee income is estimated to decline on low mortgage banking revenue and seasonally weak service charges on deposits. Notably, a higher interest rate environment is likely to put mortgage banking under pressure. However, improved capital markets are anticipated to be a favorable factor.

Activities of Citizens Financial during the quarter to be reported were inadequate to win analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter remained unchanged at 51 cents over the last seven days. Notably, the estimated figure represents year-over-year growth of 24.7%.

Earnings Whispers

Our proven model does not conclusively show that Citizens Financial is likely to beat on the Zacks Consensus Estimate in the first quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The Earnings ESP for Citizens Financial is 0.00%. This is because the Most Accurate estimate of 51 cents comes in line with the Zacks Consensus Estimate. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Though Citizens Financial’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident of an earnings surprise.

Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model, these have the right combination of elements to post an earnings beat this quarter.

Lazard Ltd. LAZ has an Earnings ESP of +6.41% and a Zacks Rank #2. It is scheduled to report first-quarter 2017 results on Apr 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for T. Rowe Price Group, Inc. TROW is +0.84% and it carries a Zacks Rank #3. The company is scheduled to release first-quarter results on Apr 25.

UMB Financial Corporation UMBF has an Earnings ESP of +4.76% and a Zacks Rank #2. It is slated to report first-quarter results on Apr 26.

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