Strong Q3 Driving Growth At S&P 500 Component Citizens Financial

Key Points

• Citizens Financial Group is among regional banks showing substantial growth due to higher interest rates they can charge on financial products offered to customers.
• The Rhode Island-based company earned $1.30 per share in Q3, up 7% from the prior year. Revenue was $2.481 billion, a year-over-year increase of 43%.
• Wall Street analysts have a consensus rating of "moderate buy" on the stock, with a price target of 46.32, a potential upside of 13.26%. 

Large-cap financial planning and asset management firm Ameriprise Financial NYSE: AMP advanced 13.79% in the past week, following a better-than-expected third-quarter report. Higher interest rates were a key growth driver, which has been true for many companies throughout the financial sector. 

Regional banks have shown substantial growth due to higher rates they can charge on financial products offered to customers. For example, S&P 500 component Citizens Financial Group NYSE: CFG is up 19.03% in the past month after it, too, said higher interest rates helped boost profit in the most recent quarter. 

Citizens has a market capitalization of more than $20 billion. Still, unlike Ameriprise, which has a national presence through a network of financial advisors, Citizens operates in New England, the mid-Atlantic, and the midwest. That means it’s less well-known, and like other regional banks, tends to fly under the radar of investors who tend to gravitate toward more familiar companies. 

The Rhode Island-based company reported its third quarter in mid-October, topping both earnings and revenue views. Net income came in at $1.30 per share, up 7% from the prior year. Revenue was $2.481 billion, a year-over-year increase of 43%. That was the second quarter in a row of revenue growth, following declines in the previous six quarters.

MarketBeat analyst data show a consensus rating of “moderate buy,” with a price target of $46.32, a potential upside of 13.26% in the next 12 to 18 months.

Prudent Management & Business Expansion

Aaron Dessen, a certified financial planner at Payne Capital Management, says several factors have driven growth at Citizens. For example, he says, the company is “seeing above-peer loan growth. They have prudent expense management and attractive valuations and they are expecting their net-interest income, just from the rising interest rates, to increase by $300 million this year versus last year.”

Dessen also cites the company’s expansion into equity and fixed-income underwriting as well as financial advisory services, and other capabilities.

When it comes to Citizens’ valuation, it’s currently trading at about 9 times earnings. Dessen notes that its five-year average of about 11 times earnings also reflects a discount. 

Two of Citizens’ industry peers, Fifth Third Bancorp NASDAQ: FITB and Huntington Bancshares NASDAQ: HBAN are currently trading at multiples of 11 times earnings. 

Dessen says Citizens is currently a more attractive option than other regional or super-regional banks. 

In particular, he cites Citizens’ growth trajectory and its outlook. One of the company’s strategies has been to grow through acquisition. Recent acquisitions include the east coast branches of U.K.-based HSBC Holdings NYSE: HSBC and New Jersey-based Investors Bancorp.

Dessen also points to Citizens’ credit profile as a strength. In the past few years, it’s focused on lending to larger and better-capitalized enterprise customers. While most consumers tend to frame banks in terms of checking or savings accounts, or perhaps through a lens of a mortgage, business lending is a big part of a bank’s profit. 

Best Gains In Over A Year 

Citizens notched a gain of 19.02% in October, its best monthly gain since February 2021. That’s actually the same month when the stock began its current consolidation. 

Because of the uptrend in recent weeks, Citizens’ 50-day moving average is turning slightly higher, but remains below its 200-day line. 

Within the northeast regional banking sub-industry, top price performers include small-caps Orange County Bancorp NASDAQ: OBT, NBT Bancorp NASDAQ: NBTB, S&T Bancorp NASDAQ: STBA, Peapack-Gladstone Financial NASDAQ: PCG and Mid Penn Bancorp NASDAQ: MPB. The performance of these companies is a reminder that it’s not just the big, well-known names that can add alpha to an equity portfolio.

Meanwhile, large-cap regional M&T Bank NYSE: MTB, which, like Citizens, is an S&P 500 component, gapped down after its most recent earnings support, but the decline may be stabilizing. The stock rallied nearly 4% last week, essentially in tandem with its index.