Private Bank And NY Metro Expansion Will Strengthen Future Prospects

Key Takeaways

• Strategic initiatives and cost efficiencies are projected to improve net margins and significantly enhance future earnings.
  
• Share repurchases and growth in the NY Metro market are expected to drive revenue and EPS growth.
  
• Limited loan demand, credit risks in commercial real estate, and pressure on margins may challenge growth and profitability in an uncertain economic environment.

Catalysts

Operates as the bank holding company that provides retail and commercial banking products and services to individuals, small businesses, middle-market companies, corporations, and institutions in the United States.

• The Private Bank is anticipated to contribute positively to earnings starting Q4 and is expected to add meaningfully to EPS in 2025 as it grows its deposit base and loan portfolio. This should impact earnings and revenue growth positively.
  
• Strategic initiatives like TOP 9 and TOP 10 are projected to bring significant cost efficiencies, with expected run-rate benefits of $135 million and over $100 million by the end of 2025, respectively, potentially improving net margins.
  
• Continued share repurchases, with $325 million in buybacks during the quarter and plans for further buybacks, are expected to enhance EPS by reducing the share count.
  
• The development in the NY Metro market, including deposit growth and increased brand recognition, as well as leveraging their position in sponsor leverage loan arrangements, should contribute to revenue growth.
  
• The expected rebound in net interest income (NII) and fees, coupled with favorable loan growth dynamics as rate cuts ease economic conditions, could contribute to revenue growth.

Citizens Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Citizens Financial Group's revenue will grow by 9.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 16.4% today to 25.8% in 3 years time.
• Analysts expect earnings to reach $2.4 billion (and earnings per share of $6.24) by about December 2027, up from $1.2 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.7x on those 2027 earnings, down from 16.9x today. This future PE is lower than the current PE for the US Banks industry at 12.9x.
• Analysts expect the number of shares outstanding to decline by 4.69% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.37%, as per the Simply Wall St company report.

Citizens Financial Group Future Earnings Per Share Growth

Risks

• Limited loan demand and an uncertain economic environment could negatively impact revenue growth and net interest income.
  
• Exposure to commercial real estate (CRE), particularly the General Office portfolio, poses credit risk, which could affect net margins and earnings due to potential loan losses.
  
• Downward pressure on net interest margin (NIM) due to increased hedge costs and fluctuating interest rate expectations may challenge profitability.
  
• Seasonal and potential ongoing declines in Capital Markets fees could impact non-interest income and overall earnings growth.
  
• Risks associated with execution on strategic initiatives and maintaining positive operating leverage in a competitive banking environment could hinder revenue and earnings improvements.

Valuation

• The analysts have a consensus price target of $50.23 for Citizens Financial Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $59.0, and the most bearish reporting a price target of just $42.6.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $9.2 billion, earnings will come to $2.4 billion, and it would be trading on a PE ratio of 9.7x, assuming you use a discount rate of 6.4%.
• Given the current share price of $44.74, the analyst's price target of $50.23 is 10.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.