What Is Going on With CFG Shares?

One of Wall Street's biggest winners of the day is Citizens Financial, a banking company whose shares have climbed 3.3% to a price of $33.99 -- 11.83% below its average analyst target price of $38.55.

The average analyst rating for the stock is buy. CFG may have outstripped the S&P 500 index by 4.0% so far today, but it has lagged behind the index by 1.2% over the last year, returning 18.8%.

Citizens Financial Group, Inc. 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 company is part of the financial services sector, alongside a staggering variety of banking, mortgage, insurance,and credit service companies. If there is one common denominator among all companies in the sector, it’s that they are all dedicated to maintaining and developing new systems for the storage and transfer of value and risk.

Citizens Financial's trailing 12 month P/E ratio is 12.2, based on its trailing EPS of $2.78. The company has a forward P/E ratio of 8.4 according to its forward EPS of $4.03 -- which is an estimate of what its earnings will look like in the next quarter.

The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the finance sector has an average P/E ratio of 12.38, and the average for the S&P 500 is 15.97.

CFG’s price to earnings ratio can be divided by its projected five-year growth rate, to give us the price to earnings, or PEG ratio. This allows us to put its earnings valuation in the context of its growth expectations which is useful because companies with low P/E ratios often have low growth, which means they actually do not present an attractive value.

When we perform the calculation for Citizens Financial, we obtain a PEG ratio of 12.25, which indicates that the company is overvalued compared to its growth prospects. The weakness with PEG ratios is that they rely on expected growth estimates, which of course may not turn out as expected.

Citizens Financial's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023 2,961,000 172,000 2,789,000 -30.15
2022 4,119,000 126,000 3,993,000 85.63
2021 2,275,000 124,000 2,151,000 30828.57
2020 111,000 118,000 -7,000 -100.45
2019 1,697,000 126,000 1,571,000 2.35
2018 1,767,000 232,000 1,535,000
  • Average free cash flow: $2.01 Billion
  • Average free cash flown growth rate: 12.4 %
  • Coefficient of variability (lower numbers indicating more stability): 0.0 %

With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in CFG have received an annualized dividend yield of 5.1% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.

Citizens Financial's P/B ratio of 0.72 indicates that the market value of the company is less than the value of its assets -- a potential indicator of an undervalued stock. The average P/B ratio of the Finance sector was 1.58 as of the first quarter of 2023.

With a Very low P/E ratio, an exceptionally low P/B ratio., and generally positive cash flows with an upwards trend, we can conclude that Citizens Financial is probably undervalued at current prices. The stock presents poor growth indicators because of its weak net margins with a negative growth trend, and an inflated PEG ratio.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.