UPDATE: Citigroup Initiates Coverage on Citizens Financial Group with Neutral Rating, $26 PT as Path to Higher Returns is Visible, But Distant

In a report published Monday, Citigroup analyst Keith Horowitz initiated coverage on Citizens Financial Group CFG with a Neutral rating and $26.00 price target. In the report, Citigroup noted, “We are initiating coverage on CFG with a Neutral and $26 price target, which implies 13% expected total return. On the surface, the stock screens as an attractive turnaround story with the company overcapitalized at 12.5% B3 T1C and a very high efficiency ratio after being spun out from its parent RBS. Additionally, the company is very well positioned for higher rates. We rate the stock a Neutral as we believe the return on tangible equity (ROTE) will remain depressed for a while and are modeling ROTE below 9% (vs 5.8% in 3Q14) by the end of 2016 vs estimated cost of capital of 11%. Eventually, we believe the company can get to a normalized ROTE in 13-14% range, but it will take a while and believe the current price of 1x TBV vs peers at 1.4x adequately reflects that in the short term the returns will be well below the estimated cost of capital.” Citizens Financial Group closed on Friday at $23.62.