3 Reasons to Sell CFG and 1 Stock to Buy Instead

Citizens Financial Group has had an impressive run over the past six months as its shares have beaten the S&P 500 by 9.2%. The stock now trades at $60.28, marking a 16.8% gain. This performance may have investors wondering how to approach the situation.

Is now the time to buy Citizens Financial Group, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Citizens Financial Group Will Underperform?

We’re glad investors have benefited from the price increase, but we're swiping left on Citizens Financial Group for now. Here are three reasons there are better opportunities than CFG and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

Net interest income and and fee-based revenue are the two pillars supporting bank earnings. The former captures profit from the gap between lending rates and deposit costs, while the latter encompasses charges for banking services, credit products, wealth management, and trading activities.

Over the last five years, Citizens Financial Group grew its revenue at a sluggish 3.6% compounded annual growth rate. This fell short of our benchmark for the banking sector.

2. Net Interest Income Points to Soft Demand

Net interest income commands greater market attention due to its reliability and consistency, whereas one-time fees are often seen as lower-quality revenue that lacks the same dependable characteristics.

Citizens Financial Group’s net interest income has grown at a 5% annualized rate over the last five years, much 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 3.5% 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 doesn’t pass our quality test. With its shares outperforming the market lately, the stock trades at 1.1× forward P/B (or $60.28 per share). This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now. We’d suggest looking at a dominant Aerospace business that has perfected its M&A strategy.

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