Private Bank Progress And Efficiency Initiatives Will Strengthen Future Performance

Key Takeaways

• Continued NIM expansion and fee growth are expected to improve revenue and future earnings, supporting the company's growth trajectory.
  
• Efficiency programs and share repurchases suggest improved operating leverage and enhanced EPS, reflecting confidence in strong future financial performance.
  
• Subdued loan demand, uncertain credit trends, and high expenses pose risks to earnings and profitability, while reliance on market conditions threatens revenue growth.

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.

• Continued NIM expansion and fee growth are expected to drive solid NII growth, indicating an improvement in revenue, which should support future earnings growth.
  
• Progress with the Private Bank, including increased deposits, loan growth, and assets under management, is likely to contribute around 5% to the bottom line by 2025, enhancing net margins.
  
• The TOP 9 and TOP 10 efficiency programs aim to deliver significant cost benefits, suggesting operating leverage improvements and potential increases in net margins.
  
• Successful execution of share repurchases indicates a calculated reduction of shares outstanding, which should enhance EPS and contribute positively to earnings growth.
  
• Medium-term ROTCE targets of 16% to 18% show strong confidence in future financial performance, supported by asset-sensitive balance sheets and a focus on optimizing loan portfolios, impacting earnings and net margins positively.

Citizens Financial Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Citizens Financial Group's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.3% today to 26.3% in 3 years time.
• Analysts expect earnings to reach $2.5 billion (and earnings per share of $6.35) by about January 2028, up from $1.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.9x on those 2028 earnings, down from 15.2x today. This future PE is lower than the current PE for the US Banks industry at 12.3x.
• Analysts expect the number of shares outstanding to decline by 3.57% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Citizens Financial Group Future Earnings Per Share Growth

Risks

• The company is facing subdued loan demand, which could lead to lower-than-expected loan growth and impact future net interest income and overall earnings.
  
• Higher expenses from investment in the Private Bank and other strategic initiatives could pressure net margins if revenue growth doesn't keep pace as projected.
  
• Credit trends remain uncertain despite current improvements, particularly in the Commercial Real Estate (CRE) office portfolio, posing a risk to future credit costs and impacting profitability.
  
• The company relies significantly on achieving a medium-term target for Return on Tangible Common Equity (ROTCE), which may be challenging if market conditions or strategic execution do not align with expectations, impacting earnings.
  
• The reliance on capital markets and wealth management fees for non-interest income growth might be at risk if market conditions deteriorate, affecting revenue.

Valuation

• The analysts have a consensus price target of $52.32 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 $60.0, 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 2028, revenues will be $9.5 billion, earnings will come to $2.5 billion, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 6.4%.
• Given the current share price of $47.35, the analyst's price target of $52.32 is 9.5% 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.