Citizens Financial Group trades at $48.46 and has moved in lockstep with the market. Its shares have returned 9.2% over the last six months while the S&P 500 has gained 6.4%.
Is there a buying opportunity in Citizens Financial Group, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Is Citizens Financial Group Not Exciting?
We're swiping left on Citizens Financial Group for now. Here are three reasons why CFG doesn't excite us and a stock we'd rather own.
1. Net Interest Income Points to Soft Demand
Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.
Citizens Financial Group’s net interest income has grown at a 4% annualized rate over the last five years, worse than the broader banking industry and in line with its total revenue. Its growth was driven by an increase in its net interest margin, which represents how much a bank earns in relation to its outstanding loans, as its loan book shrank throughout that period.
2. Net Interest Margin Dropping
The net interest margin (NIM) is a key profitability indicator that measures the difference between what a bank earns on its loans and what it pays on its deposits. This metric measures how efficiently one can generate income from its core lending activities.
Over the past two years, Citizens Financial Group’s net interest margin averaged 2.9%. Its margin also contracted by 36.7 basis points (100 basis points = 1 percentage point) over that period.
This decline was a headwind for its net interest income. While prevailing rates are a major determinant of net interest margin changes over time, the decline could mean that Citizens Financial Group either faced competition for loans and deposits or experienced a negative mix shift in its balance sheet composition.
3. EPS Growth Has Stalled
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Citizens Financial Group’s flat EPS over the last five years was below its 3.3% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Citizens Financial Group isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 0.9× forward P/B (or $48.46 per share). Beauty is in the eye of the beholder, but our analysis shows the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. Let us point you toward an all-weather company that owns household favorite Taco Bell.
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