Will Citizens Financial (CFG) Stock Gain Post Q3 Earnings?

Citizens Financial Group, Inc.’s (NYSE:CFG) earnings estimates have been going up, ahead of its third-quarter earnings release on Oct 21.

The Providence, Rhode Island-based company remains on track to implement several strategic efforts to bolster its performance. In July this year, it announced the TOP III initiatives to improve efficiency.

The company outpaced the Zacks Consensus Estimate by nearly 7% in second-quarter 2016. Also, the bottom line grew 15% year over year, aided by higher net-interest income, partially offset by a fall in non-interest income and rise in provisions.

Interestingly, in the trailing four quarters, Citizens Financial has delivered positive earnings surprises with an average earnings beat of 4.4%. Regarding the stock’s performance, the company has gained more than 20% over the last three months.

CITIZENS FIN GP Price and EPS Surprise

CITIZENS FIN GP Price and EPS Surprise | CITIZENS FIN GP Quote

Will the upcoming earnings release push up Citizens Financial’s stock? It depends largely to what extent the company has been able to boost its performance. Notably, our quantitative model doesn’t call for an earnings beat this time around. Here is why:

Citizens Financial doesn’t have the right combination of the two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or 2 (Buy) or at least 3 (Hold) – that increases the odds of an earnings beat.

Zacks ESP: The Earnings ESP for Citizens Financial is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate, both, stand at 50 cents.

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

What to Expect in Q3?

Impact of Loan Sale: During the second quarter, the company completed the sale of consumer real estate-secured loans, classified as troubled debt restructurings (TDR). The transaction is expected to result in a third-quarter 2016 pre-tax gain of around $70 million, on the sale of $310 million of loans held for sale.

Muted Growth in Net interest Income, Margin Pressure Lingers: While management expects average loan growth of around 1.5% on a sequential basis in the to-be-reported quarter, we do not forecast significant improvement in net-interest income amid the persistent low rate environment. Further, the company expects NIM to decline slightly from its second-quarter 2016 level of 2.84%

Stable Expenses and Provisions: Management expects expenses and provisions to remain essentially flat on a sequential basis.

Fee Income Strength to Drive Revenues: Non-interest income might get a lift owing to Citizens Financial’s ongoing initiatives to improve its several capabilities. Notably, the company expects low single-digit growth in non-interest income. Management estimates a small uptick in service charges. In Cards, third quarter is usually a bit stronger than second quarter and the company expects consistent growth, potentially at a little higher pace in the third quarter. Regarding mortgages, the company anticipates some higher level of refinance compared to second quarter.

Stocks That Warrant a Look

Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.

State Street Corporation (NYSE:STT) is slated to release results on Oct 26. The company has an Earnings ESP of +0.80% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Raymond James Financial, Inc. (NYSE:RJF) has an Earnings ESP of +2.04% and it carries a Zacks Rank #2. The company is slated to release results on Oct 26.

Lazard Ltd. (NYSE:LAZ) , another Zacks Rank #2 stock, has an Earnings ESP of +3.90%. It is scheduled to report results on Oct 27.

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>