Is Citizens Financial Group (CFG) Still Attractive After A 42% One-Year Share Price Rally

• If you are wondering whether Citizens Financial Group is still reasonably priced after its recent run, this article will help you make sense of what you are actually paying for.
• The stock last closed at US$65.04, with a 7 day return of 2.7% decline, a 30 day return of 6.9%, a 9.5% return year to date and a 42.3% return over the past year, alongside 3 year and 5 year returns of 77.9% and 72.9%.
• Recent market attention on bank stocks has kept Citizens Financial Group in the conversation, and investors have been weighing its share price moves against sector peers and interest rate expectations. This backdrop provides useful context for assessing whether the current share price fairly reflects the company’s fundamentals.
• Our Simply Wall St valuation checks give Citizens Financial Group a value score of 3 out of 6. Next we will walk through the key valuation approaches behind that score, before finishing with a way to pull all these methods together into a clearer view of value.

Citizens Financial Group delivered 42.3% returns over the last year. See how this stacks up to the rest of the Banks industry.

Approach 1: Citizens Financial Group Excess Returns Analysis

The Excess Returns model looks at how much profit a company is expected to generate above the return that shareholders require, then capitalizes those excess profits into an estimated value per share.

For Citizens Financial Group, the model starts with a Book Value of US$56.39 per share and a Stable EPS of US$5.93 per share, based on weighted future Return on Equity estimates from 14 analysts. The average Return on Equity used in the model is 9.48%, while the Cost of Equity is US$4.44 per share. That leaves an Excess Return of US$1.49 per share, which represents the earnings above what shareholders are assumed to require.

The Stable Book Value is set at US$62.54 per share, based on estimates from 9 analysts. Feeding these inputs into the Excess Returns framework gives an estimated intrinsic value of about US$103.07 per share. Versus the recent share price of US$65.04, this suggests the stock may be trading at a discount of 36.9% to the model’s estimated intrinsic value.

Result: UNDERVALUED

Our Excess Returns analysis suggests Citizens Financial Group is undervalued by 36.9%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Citizens Financial Group.

Approach 2: Citizens Financial Group Price vs Earnings

For a profitable company like Citizens Financial Group, the P/E ratio is a useful way to gauge how much you are paying for each dollar of earnings. It links the share price directly to the business’s ability to generate profit, which is ultimately what supports returns for shareholders.

What counts as a “normal” or “fair” P/E depends on what investors expect for future earnings growth and how risky they perceive those earnings to be. Higher expected growth or lower perceived risk can justify a higher P/E, while lower growth or higher risk usually goes with a lower P/E.

Citizens Financial Group currently trades on a P/E of 16.37x. That sits above the Banks industry average of 11.83x and also above the peer average of 13.93x. Simply Wall St’s Fair Ratio for Citizens Financial Group is 16.80x, which is a proprietary estimate of what the P/E “should” be given the company’s earnings profile, industry, profit margins, market value and risk factors. This Fair Ratio can be more informative than simple peer or industry comparisons because it adjusts for those company specific inputs. With the current P/E of 16.37x sitting very close to the Fair Ratio of 16.80x, the shares look priced at about the level this framework would suggest.

Result: ABOUT RIGHT

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Upgrade Your Decision Making: Choose your Citizens Financial Group Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which are simply your story about a company tied directly to your own forecast for revenue, earnings, margins and a fair value that you can then compare with the current share price.

On Simply Wall St’s Community page, millions of investors use Narratives as an easy tool to connect their view of a company to numbers, so you can, for example, set one Citizens Financial Group Narrative where you think fair value is about US$86.72 and another where it is about US$72.28, then see how each fair value stacks up against the live price to help you decide whether the stock looks expensive or cheap on your terms.

Because Narratives update automatically when new news or earnings arrive, your story and valuation stay current without extra work, and you can quickly see how more optimistic or more cautious assumptions change your view of Citizens Financial Group over time.

Do you think there's more to the story for Citizens Financial Group? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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