Why Are CIT Group Analysts So Concerned?

CIT Group Inc. CIT’s stock is up more than 26 percent from its February lows, but the company’s recent Strategic Update failed to wow Wall Street. The company’s long path to potential meaningful growth is a lot longer than many investors had hoped.

“Yesterday’s Strategic Update proved disappointing for investors expecting a quicker ramp to acceptable returns, an easier disposal of the air business, and a sale or spin-off of the rail business,” BMO Capital Markets analyst James Fotheringham explains in a new note.

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Not only does BMO see the stock’s recent surge as overly-optimistic, the lackluster update drove BMO to lower its price target for the stock from $37 to $30. The firm maintains a Market Perform rating.

Sterne Agee CRT also lowered its price target from $40 to $37 and cut its rating for CIT from Buy to Neutral following the update.
 

“We are reducing our rating from BUY to NEUTRAL to reflect the longer-than-expected period outlined by management to achieve targeted level of profitability, the higher cost associated with the sale/spin of the air leasing business in 2016, and, while significantly above current levels, a targeted level of ROATCE that translate into below-peer level ROE,” analyst Henry Coffey, Jr. explains.
 

Keefe, Bruyette & Woods is slightly more optimistic. The firm maintains its Market Perform rating and $40 price target.

“We believe management has already begun the hard work on an ambitious and complicated plan to unlock franchise value that will take time to execute,” analyst Jefferson Harralson writes.
 

Disclosure: the author holds no position in the stocks mentioned.