Is Citizens Financial Group (CFG) Stock A Bargain Or Fully Priced?
Citizens Financial Group stock has delivered a very strong 181.5% return over the past 3 years, yet the current valuation picture is more nuanced, with the Excess Returns intrinsic value estimate pointing to meaningful upside while market based multiples look broadly in line with peers.
- The 181.5% 3 year return raises the question of how much of Citizens Financial Group's potential is already reflected in the current share price.
- The key support for the valuation can come from how reliably the bank converts its loan and fee income into steady cash flows, while any deterioration in credit quality or funding costs may weigh on those cash flows and the value investors assign to them.
- Citizens Financial Group carries a mixed overall value score of 3 out of 6, which points to a mixed picture rather than a clear bargain or clear overvaluation.
The issue now is whether the current US$70.18 share price already reflects a fair balance of these factors or if the intrinsic value estimate suggests additional upside that the market has yet to price in.
Look beyond Citizens Financial Group and review other banks and financials that combine strong recent gains with potential upside using the 46 high quality undervalued stocks
Is Citizens Financial Group a Bargain on Excess Returns?
The Excess Returns model looks at how effectively Citizens Financial Group turns its equity base into earnings above the required return that shareholders expect. It compares the return on equity to the cost of equity and capitalises that surplus value over time.
For Citizens Financial Group, the model uses a Book Value of $56.95 per share and a Stable EPS estimate of $6.49 per share, based on weighted future Return on Equity estimates from 9 analysts. That equates to an average Return on Equity of 10.12% against a Cost of Equity of $4.65 per share, leaving an Excess Return of $1.84 per share. The stable Book Value is projected at $64.13 per share using inputs from 5 analysts. This supports the idea of a sizeable equity base continuing to earn returns above the required rate. Putting these inputs together, the Excess Returns valuation points to an intrinsic value of about $116.06 per share, compared with the current $70.18 share price.
On this model, Citizens Financial Group stock appears undervalued, with the current price sitting below the Excess Returns estimate of intrinsic value.
Our Excess Returns analysis suggests Citizens Financial Group is undervalued by 39.5%. Track this in your watchlist or portfolio, or discover 46 more high quality undervalued stocks.
Where Does Citizens Financial Group Sit on Earnings?
The P/E ratio is usually a straightforward quick check for a bank like Citizens Financial Group because earnings reflect its lending and fee based activities. Citizens Financial Group currently trades on a P/E of about 14.9x, which is above both the Banks industry average of 11.8x and the peer group average of roughly 12.9x. That means investors are paying a higher price for each dollar of current earnings than for many comparable banks.
The Fair P/E Ratio for Citizens Financial Group is estimated at about 16.5x. That is only modestly above the current 14.9x level, so the gap between what the stock currently trades at and what the model suggests as a fair multiple is not large. Compared with that tailored fair ratio, Citizens Financial Group does not screen as clearly cheap or clearly expensive on earnings alone.
Overall, Citizens Financial Group appears roughly fairly valued on its current P/E multiple.
See what the numbers say about this price — find out in our valuation breakdown.
The Citizens Financial Group Narrative: What Would Justify Today's Price?
Simply Wall St Narratives for Citizens Financial Group pick up where the valuation puzzle leaves off by explaining which views on future growth, margins and earnings would need to hold for the stock to be worth materially more or materially less than today's price. Each narrative links its number to a clear view on how Citizens Financial Group's growth, profitability and risks could evolve, giving you something concrete to revisit as new information comes through.
Share a narrative on Citizens Financial Group with the Simply Wall St community to set out your number-based view on where its growth, margins and execution go from here. Add your voice now so you can track how your thesis holds up as new results arrive.
Do you think there's more to the story for Citizens Financial Group? Head over to our Community to see what others are saying!
The Bottom Line
For Citizens Financial Group, the Excess Returns intrinsic value estimate points to undervaluation, while the current P/E suggests the market is pricing the stock at about the going rate for its peers. That split mainly comes down to how much weight you place on the company sustaining returns on equity above its required cost of equity versus the market’s more cautious multiple. With a mixed overall value profile, the key question from here is whether Citizens Financial Group can keep converting its equity base into dependable earnings without a material hit from funding costs or credit quality.
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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