Citizens Financial: Growth, Value & Yield

07/14/2017 2:50 am EST

Focus: FINANCIALS

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Many bank stocks are undervalued and offer attractive earnings growth. Bullish sentiment on the stocks is just beginning to gain momentum, explains growth and income expert Crista Huff, editor of Cabot Undervalued Stocks Advisor.

If I were to buy one more bank stock today, it would be Citizens Financial Group (CFG). The stock meets all of my growth and valuation criteria, and the price chart appears to have more upside than some of its peers.

Citizens Financial is a retail bank holding company that was spun off from the Royal Bank of Scotland (RBS) in  2014. It owns 1,200 Citizens Bank branches in 11 states spanning the Midwest, mid-Atlantic and New England, with headquarters in Providence, Rhode Island.

All of the major balance sheet items are expected to grow consistently through December 2019, including revenue, net loans, total assets, return on equity (ROE) and profit. Adjusted net income is expected to grow from $1.06 billion to $1.42 billion from year-end 2016 through year-end 2019.

A consensus of Wall Street analysts expects earnings per share (EPS) to grow from $1.97 in 2016 (December fiscal year-end) to $2.44 and $2.77 in 2017 and 2018, reflecting very attractive earnings growth rates of 23.9% and 13.5%. The corresponding price/earnings ratios (P/Es) are 15.1 and 13.3.

On June 28, Citizens Financial announced its intention to repurchase up to $850 million of stock in the next 12 months and to increase the quarterly dividend payout from $0.14 to $0.18 in the third quarter of 2017, with another increase to $0.22 in early 2018.

The current dividend yield is 1.5%. The proposed dividend increases will bring the yield up to about 2.4% for investors who buy shares at the current price.

chart

The stock had a huge run-up in late 2016, rising to new highs at $39.5 in early March 2017, and has since traded sideways between $33 and $38.

The market is embracing financial stocks in light of rising interest rates that enhance banks’ profitability, the outsized returns of capital from this year’s stress test results, and investors are following the flow of tech stock money into bank stocks. CFG is a great choice for investors seeking capital gains, value and dividends.

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