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Fee Income Growth to Support Citizens' (CFG) Q2 Earnings

Citizens Financial Group CFG is scheduled to report second-quarter 2019 results on Jul 19, before market open. Its revenues and earnings are expected to rise year over year.

Before we look at the factors that might influence second-quarter earnings, let’s see how the company performed in the past quarters.

In first-quarter 2019, this Providence, RI-based bank displayed organic growth. Rise in revenues and loan growth were the key highlights. Also, the company recorded higher deposits. However, rise in expenses and provisions were concerns.

Notably, Citizens boasts an impressive surprise history. It surpassed earnings estimates in each of the trailing four quarters, the average beat being 3.6%.

Citizens Financial Group, Inc. Price and EPS Surprise

Soft Net Interest Income (NII) Growth: The second quarter witnessed slowdown in commercial and industrial, and real estate lending scenarios. Though consumer loans witnessed an uptrend, little support to NII is expected. Also, flattening of the yield curve and steadily rising deposit betas during the quarter are likely to impact net interest margin to some extent.

However, rise in earning assets is likely to boost interest income. The Zacks Consensus Estimate for average interest earning assets of $146.1 billion for the to-be-reported quarter indicates a 4% rise from the year-ago reported figure.

The consensus estimate of $1.17 billion for NII suggests 4.6% year-over-year growth.

Moreover, management expects 0.5% sequential average loan growth for the quarter. Further, margin is expected to remain stable or decline slightly on a sequential basis due to continued but decelerating deposit repricing.

Capital Market Fees to Rise: Decent equity markets performance and the central banks’ dovish stance seem to have supported equity issuance across the globe. This also had a favorable impact on IPO activity during the quarter to some extent. So related fees are likely to increase.

Also, while M&A deal value and volume witnessed a fall due to higher borrowing costs and several geopolitical concerns during the quarter, Citizens’ might have bagged higher advisory fees due to its solid business profile. The consensus estimate for capital market fees of $56 million indicates a 16.7% rise.

Fee Income to Grow: Per the Fed’s data, deposits improved in the second quarter, and is likely to have aided Citizens in bagging higher service charges and fees. The consensus estimate of $130 million for the same indicates 2.4% year-over-year jump.

Further, the trend of consumer spending was decent during the quarter, which is likely to provide some support to the company’s top line. The consensus estimate for card fees of $63 million indicates a 5% increase.

Due to lower mortgage rates, mortgage refinancing activities and fresh originations might have picked pace in the second quarter. Also, driven by the impact of the Franklin American Mortgage acquisition, Citizens is expected to report higher mortgage banking fees. The Zacks Consensus Estimate for same is $53 million, indicating considerable rise.

Furthermore, with decent equity markets, trust and investment services fees are expected to rise 16.3% year over year to $50 million.

Given expectations of rise in most components, the Zacks Consensus Estimate for non-interest income is $447 million, up 15.2%.

Expenses to Trend Higher: Despite its TOP V efficiency initiatives, Citizens’ expenses are expected to increase due to investments in enhanced data analytics and technology to improve customer experience.

Earnings Whispers

According to our quantitative model, an earnings beat is less likely for Citizens in the upcoming results. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen, which is not the case here as elaborated below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP for Citizens is -0.40%.

Zacks Rank: The stock currently carries a Zacks Rank #4 (Sell).

Notably, the Zacks Consensus Estimate for earnings for the to-be-reported quarter is 94 cents, which suggests year-over-year improvement of 6.8%. Also, the consensus estimate for sales of $1.62 billion indicates 7.1% growth.

Stocks to Consider

BOK Financial Corporation BOKF is scheduled to release results on Jul 24. The company has an Earnings ESP of +1.16% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Earnings ESP for Cullen/Frost Bankers, Inc. CFR is +0.13% and it also carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Jul 25.

TD Ameritrade Holding Corporation AMTD is slated to release results on Jul 22. It currently has an Earnings ESP of +0.03% and a Zacks Rank #3.

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Citizens Financial Group, Inc. (CFG): Free Stock Analysis Report
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