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Can Citizens (CFG) Maintain its Earnings Beat Streak in Q3?

Zacks Equity Research
Updated

Citizens Financial Group CFG is scheduled to report third-quarter 2017 results on Oct 20, before the market opens. The company is expected to witness year-over-year growth in revenues and earnings.

Further, Citizens Financial boasts an impressive surprise history. It surpassed earnings estimates in each of the trailing four quarters, with an average positive surprise of 9.1%.

The Providence, RI-based bank’s organic growth was reflected in second-quarter 2017 results, which witnessed continued rise in loan and deposit balances. On the downside, the company recorded increased expenses.

Citizens Financial’s results are expected to benefit from rising interest income and prudent expense management efforts. The Zacks Consensus Estimate for to-be-reported quarter earnings of 64 cents indicates a 23.3% year-over-year improvement.

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Citizens Financial Group, Inc. Price and EPS Surprise

Citizens Financial Group, Inc. Price and EPS Surprise | Citizens Financial Group, Inc. Quote

Factors That Might Drive Better-than-Expected Results

Higher Net interest income (NII): On account of a decent quarter in terms of loan growth and higher interest rates, Citizens Financial’s NII is likely to increase. The Zacks Consensus Estimate for NII of $1.05 billion reflects 11.6% growth year over year.

Moreover, estimates for average interest-earning assets of $139 billion reflects a 5.1% increase from the year-ago quarter.

Controlled Expenses: Citizens Financial’s expenses are expected to continue declining on the back of its TOP IV efficiency initiative. Also, its self-funding revenue initiatives might help lower the efficiency ratio.

The consensus estimate for efficiency ratio is 0.60%, down 4 basis points year over year.

Fee Income Might Decline: Fee income might have declined in the third quarter due to lack of volatility in the markets.

Also, some of the other sources that contribute to fee income, such as Service Charges and Trust & Investment Management Fees, are expected to decline. The consensus estimate for Service Charge and Fees of $131 million reflects a 13.8% decline year over year. Further, estimates for Trust & Investment Management Fees indicate 4.1% decline to $38.5 million.

Overall, non-interest income is projected to fall 2.6% to $378 million in the third quarter.

Mortgage Banking Likely to Improve:  Mortgage banking is expected to show strength on stronger origination volumes. Also, expectations of a higher rate environment might have encouraged refinancing activities during the quarter. The consensus estimate for mortgage banking revenues is $29.8 million, reflecting 18.1% improvement year over year.

Why a Likely Positive Surprise?

Our proven model shows that Citizens Financial has the right combination of two key ingredients — positive Earnings ESP and a Zacks Rank #3 (Hold) or better — to increase the odds of an earnings beat.

Zacks ESP: Earnings ESP for Citizens Financial is +0.51%.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Citizens Financial currently carries a Zacks Rank of 3.

Other Stocks That Warrant a Look

Here are some other stocks you may want to consider, as they have the right combination of elements to post an earnings beat in their upcoming releases.

Franklin Resources, Inc. BEN has an Earnings ESP of +0.56% and a Zacks Rank #2 (Buy). It is slated to report third-quarter results on Oct 26.

Santander Consumer USA Holdings Inc.’s SC Earnings ESP is +4.44% and it carries a Zacks Rank #1 (Strong Buy). The company is expected to release third-quarter results on Oct 27.You can seethe complete list of today’s Zacks #1 Rank stocks here.

Lazard Ltd. LAZ has an Earnings ESP of +1.39% and a Zacks Rank of 3. It is scheduled to report third-quarter results on Oct 26.

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Zacks Investment Research