Earnings Disappointment: Regions Financial and Citizens Financial Face Scrutiny By Piper Sandler Analyst

Piper Sandler analyst R. Scott Siefers downgraded Midwest banks Regions Financial Corp RF and Citizens Financial Group Inc CFG to Neutral from Overweight.

The analyst cut the price target at Regions Financial to $15 from $17. The analyst was bearish following the bank's third-quarter earnings miss, with some credit deterioration suggesting the shares would be 'too rangebound for now for it to return to outperformance over the next year.'"

Notably, the company reported adjusted revenues of $1.858 billion, missing the consensus of $1.890 billion, and adjusted EPS of $0.49, which fell short of the consensus of $0.58.

Siefers estimated EPS of $2.22 for FY23 and $2.02 for FY24 for RF.

The analyst reduced the price target at Citizens Financial Group to $26 from $29. For Citizens Financial Group, although the analyst strongly believed in the model, management team and long-term prospects, the potential to outperform seemed further out than expected. 

The analyst noted downward pressure on the loan (book before it hopefully inflects and ramps up more quickly) and elevated swap expenses in NII for the next couple of years (~ $441 million this year, ~ $460 million in 2024 and ~ $428 million in 2025). 

Last week, Citizens Financial Group reported a revenue decline of 7% Y/Y to $2.01 billion, missing the analyst consensus of $2.04 billion, and adjusted EPS of $0.89 missed the analyst consensus of $0.92.

Siefers estimates EPS of $3.64 for FY23 and $3.43 in FY24. 

Meanwhile, the analyst reiterated the rating of other major regional banks. Overall, post-earnings of large regional banks, the analyst lowered the 2023/2024 EPS by a median 0.2% and 0.8%, respectively, and now sees core EPS falling 7.8% in 2024 for this group, but advancing 5.4% in 2025.

RF, CFG Price Action: Regions Financial shares are down 0.49% at $14.10, and Citizens Financial Group is trading up 0.042% at $23.59 on the last check Wednesday. 

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