3 Factors to Consider for Selling CFG and One Alternative Stock Worth Purchasing

Citizens Financial Group: Recent Performance and Investment Outlook

Over the past half-year, Citizens Financial Group has delivered a notable performance, outpacing the S&P 500 by 9.2%. The stock is currently valued at $60.28, reflecting a 16.8% increase. This strong showing may prompt investors to consider their next steps regarding this stock.

Should you consider adding Citizens Financial Group to your portfolio, or does it carry potential risks?

Why We Believe Citizens Financial Group May Lag Behind

Although recent gains have benefited shareholders, we remain cautious about Citizens Financial Group at this time. Below are three reasons we see more attractive alternatives to CFG, along with a stock we prefer.

1. Modest Revenue Expansion Over Time

Bank profitability largely depends on net interest income and fee-based revenue. Net interest income reflects the difference between lending rates and deposit costs, while fee-based revenue includes charges for services, credit, wealth management, and trading.

In the past five years, Citizens Financial Group has achieved only a 3.6% compound annual growth rate in revenue, which falls short of our expectations for the banking sector.

2. Weak Net Interest Income Growth Signals Tepid Demand

Net interest income is closely watched by the market for its stability, whereas fee income is often considered less reliable. Citizens Financial Group’s net interest income has increased at an annualized rate of just 5% over the last five years, underperforming the broader banking industry.

3. Earnings Per Share Growth Remains Subdued

Long-term trends in earnings per share (EPS) reveal whether additional sales are translating into profits. Sometimes, revenue growth can be driven by heavy spending on marketing rather than true profitability.

Citizens Financial Group’s EPS has grown at a modest 3.5% annually over the last five years, mirroring its revenue trend. On a positive note, this suggests that incremental sales have been profitable.

Our Verdict

Citizens Financial Group does not meet our quality standards. Despite its recent market outperformance, the stock is trading at 1.1 times forward price-to-book (P/B), or $60.28 per share, indicating that much optimism is already reflected in the price. We believe there are more compelling investment opportunities available. For example, consider exploring the leading e-commerce and payments company in Latin America.

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