Compass Point Sees Progress Continue For Citizens Financial Group

In a report published Tuesday, Compass Point analyst Kevin Barker reiterated a Buy rating and $28.00 price target on Citizens Financial Group CFG. In the report, Compass Point noted, “CFG reported a decent 4Q result with operating EPS (CP estimate) of $0.39 which was a penny below our $0.40 estimate, yet above the consensus estimate of $0.36. Had it not been for a lower than expected reserve release, CFG would have beaten our estimate by a penny. The recent decline in reserve releases likely won't be a source of earnings as we have seen from most banks in the last several quarters. Despite this headwind, there were a series of positive developments this quarter, as CFG was one of the few regional banks to show NIM expansion while the bank continues to steadily grow its asset base. "Core operating expenses also came in better than expected, as some of the cost saving initiatives caused sequential declines in comp expense. Given the bank's progress on the expense front, its improving top-line, and the expectation for an elevated return of capital over the long-term, we view shares as undervalued at current levels while trading at 1.1x estimated TBV of $22.70. Additionally, CFG remains one of the most asset sensitive names that we cover, and stands to be one of the biggest beneficiaries if we were to see rates move higher. We are adjusting our FY15E operating EPS to $1.63 from $1.70 and FY16E EPS to $1.87 from $1.90 based on our expectation for higher provision expense. This will be a slight headwind to EPS, but it has no impact on our price target given we already assume normalized provisions of 50 bps in our valuation methodology.” Citizens Financial Group closed on Monday at $24.09.