Citizens Financial Group’s 23% return over the past six months has outpaced the S&P 500 by 19.6%, and its stock price has climbed to $63.75 per share. This run-up might have investors contemplating their next move.
Is now the time to buy Citizens Financial Group, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Is Citizens Financial Group Not Exciting?
We’re happy investors have made money, but we're cautious about Citizens Financial Group. Here are three reasons why CFG doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
From lending activities to service fees, most banks build their revenue model around two income sources. Interest rate spreads between loans and deposits create the first stream, with the second coming from charges on everything from basic bank accounts to complex investment banking transactions.
Regrettably, Citizens Financial Group’s revenue grew at a sluggish 4.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the banking sector.
2. Net Interest Income Points to Soft Demand
Markets consistently prioritize net interest income over non-recurring fees, recognizing its superior quality compared to the more unpredictable revenue streams.
Citizens Financial Group’s net interest income has grown at a 5.8% annualized rate over the last five years, worse than the broader banking industry.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Citizens Financial Group’s weak 2.5% annual EPS growth over the last five years aligns with its revenue performance. On the bright side, this tells us its incremental sales were profitable.
Final Judgment
Citizens Financial Group isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 1.1× forward P/B (or $63.75 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
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