Company Profile (excerpt from Reuters): Citizens Financial Group, Inc., incorporated on November 21, 1984, is a retail bank holding company. The Company operates through two segments: Consumer Banking and Commercial Banking. The Company delivers a range of retail and commercial banking products and services to individuals, institutions and companies. As of December 31, 2016, the Company operated approximately 1,200 branches operating in an 11-state banking footprint across the New England, Mid-Atlantic and Midwest regions and through its online, telephone and mobile banking platforms. As of December 31, 2016, it also maintained more than 100 retail and commercial non-branch offices located in its branch banking footprint and in other states and the District of Columbia. The Company’s primary subsidiaries include Citizens Bank, N.A. (CBNA), a national banking association and Citizens Bank of Pennsylvania (CBPA), a Pennsylvania-chartered savings bank.
Downloadable PDF version of this valuation:
ModernGraham Valuation of CFG – April 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass all 6 of the following tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $20,415,835,425 | Pass | |
| 2. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 3. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 4. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 28399900.00% | Pass | |
| 5. Moderate PEmg Ratio | PEmg < 20 | 15.67 | Pass | |
| 6. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.02 | Pass | |
| Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor. | ||||
| 1. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 2. Dividend Record | Currently Pays Dividend | Pass | ||
| 3. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.67 |
| MG Growth Estimate | 15.00% |
| MG Value | $102.82 |
| Opinion | Undervalued |
| MG Grade | B+ |
| MG Value based on 3% Growth | $38.72 |
| MG Value based on 0% Growth | $22.70 |
| Market Implied Growth Rate | 3.59% |
| Current Price | $41.86 |
| % of Intrinsic Value | 40.71% |
Citizens Financial Group Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history. The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $-0.89 in 2014 to an estimated $2.67 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.59% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Citizens Financial Group Inc revealed the company was trading below its Graham Number of $55.04. The company pays a dividend of $0.64 per share, for a yield of 1.5% Its PEmg (price over earnings per share – ModernGraham) was 15.67, which was below the industry average of 22.06, which by some methods of valuation makes it one of the most undervalued stocks in its industry.
Citizens Financial Group Inc performs fairly well in the ModernGraham grading system, scoring a B+.
Stage 3: Information for Further Research
| Graham Number | $55.04 |
| PEmg | 15.67 |
| PB Ratio | 1.02 |
| Dividend Yield | 1.53% |
| TTM Dividend | $0.64 |
| Number of Consecutive Years of Dividend Growth | 4 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 12/1/2017 |
| Long-Term Debt & Capital Lease Obligation | $11,765,000,000 |
| Total Assets | $152,336,000,000 |
| Intangible Assets | $6,887,000,000 |
| Total Liabilities | $132,066,000,000 |
| Shares Outstanding (Diluted Average) | 493,552,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $3.30 |
| Dec2017 | $3.25 |
| Dec2016 | $1.97 |
| Dec2015 | $1.55 |
| Dec2014 | $1.55 |
| Dec2013 | -$6.12 |
| Dec2012 | $1.15 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.67 |
| Dec2017 | $1.72 |
| Dec2016 | $0.64 |
| Dec2015 | -$0.14 |
| Dec2014 | -$0.89 |
| Dec2013 | -$1.73 |
| Dec2012 | $0.38 |
Recommended Reading:
Other ModernGraham posts about the company
Citizens Financial Group Inc Valuation – Initial Coverage $CFG
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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