On Monday, Citi upgraded Citizens Financial Group (NYSE:CFG) from Neutral to Buy, setting a price target of $36.00. The bank's stock is currently valued at 1.0 times its tangible book value (TBV) and is noted for having the highest implied cost of equity (CoE) among its peers, at 14.3%, compared to the peer median of 11.4%.
The reasoning behind the upgrade is attributed to the market's anticipation of greater credit concerns, prompting Citi to adopt a more favorable stance on Citizens Financial. The analyst believes that while their 2024 estimates align with the consensus, there is potential for upside in 2025, particularly due to an expected increase in net interest income (NII) and a reduced net interest margin (NIM) drag from cash flow hedges.
Citi anticipates a 13-14% normalized return on tangible common equity (ROTCE) for Citizens Financial over the next few years. This projection falls below the management's target of 16-18% ROTCE. Despite this, the high embedded CoE used in their analysis supports the view that the stock presents a very favorable risk/reward balance.
The upgrade reflects a positive outlook for Citizens Financial Group, suggesting that the bank is positioned to perform well despite the broader market's current concerns over credit risk. The new price target of $36.00 indicates Citi's confidence in the financial institution's future performance.
InvestingPro Insights
Following Citi's upgrade of Citizens Financial Group (NYSE:CFG) to Buy with a price target of $36.00, it's pertinent to consider additional insights that could impact investor decisions. According to InvestingPro data, Citizens Financial's market capitalization stands at $14.95 billion, and the stock has a P/E ratio of 10.19, slightly adjusting to 10.03 for the last twelve months as of Q4 2023. This reflects a valuation that is relatively modest in comparison to earnings.
InvestingPro Tips indicate that management at Citizens Financial has been actively repurchasing shares, which can be a sign of confidence in the company's value and future prospects. Moreover, the company has upheld its commitment to shareholders by maintaining dividend payments for 11 consecutive years, boasting a dividend yield of 5.24% as of the latest data. This level of yield is particularly attractive for income-focused investors, especially in a low-interest-rate environment.
However, it's important to note that six analysts have revised their earnings expectations downwards for the upcoming period. This suggests that there may be challenges ahead that could affect the company's financial performance. Despite this, the company has been profitable over the last twelve months, and analysts predict it will remain profitable this year.
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