CIT Group Inc. 's CIT efforts toward streamlining operations to improve efficiency are impressive. Given a solid capital position, the company is likely to continue enhancing shareholder value through efficient capital deployment activities.
The company's price performance also looks encouraging. Its shares have gained 31.1% in the past year, outperforming 5.6% growth of its industry .
Also, its Zacks Consensus Estimate for the current-year earnings has been revised 1.9% upward over the past 30 days, reflecting analysts' optimism about its earnings growth potential.
However, persistently rising expenses, worsening credit quality and sluggish growth in the industries, where CIT Group provides finance, continue to be the key concerns and hence make us a little apprehensive about its growth prospects. Thus, the stock currently has a Zacks Rank #3 (Hold).
Over the past few years, CIT Group has been taking several initiatives to restructure and streamline its operations with the aim of improving efficiency and becoming a regional commercial banking institution. As part of these efforts, it has made several divestures. Recently, in October 2017, the company agreed to sell Financial Freedom and the reverse mortgage portfolio to exit reverse mortgage operations. Earlier, in June, it announced a deal to sell its European Rail business, while in April the company sold stakes in the joint ventures with Tokyo Century Corporation and divested its aircraft leasing business.
Also, the company's efforts toward restructuring its balance sheet through repayment and refinancing of high-cost debt should lower its funding cost and continue to support net finance margin growth.
Moreover, given a solid capital position, the company remains well poised to deploy capital meaningfully, thereby continuing to enhance shareholder value.
However, continuously rising expenses remain a major concern for the company. Persistent rise in compensation costs, professional fees and technology costs are the primary reasons for the elevated costs. Though the company is taking several cost-saving initiatives, expenses are expected to remain elevated because of its continued investments in franchise. Thus, higher costs are likely to hurt bottom-line growth.
Also, the company has been facing deteriorating credit quality over the past few years. Provision for credit losses increased at a six-year (2012-2017) CAGR of 22.4%. Because of the company's plans of becoming a leading national middle-market bank, loan balances are likely to rise in the future thereby leading to even higher provisions.
Further, sluggish growth in the industries, where the company provides finance, remains a concern as it might hamper its prospects as borrowers may not be able to make timely payments of loans and interest.
Stocks to Consider
A few better-ranked stocks from the finance space are The Toronto-Dominion Bank TD , Citigroup Inc. C and Comerica Incorporated CMA . Each of them has a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Toronto-Dominion has witnessed upward earnings estimate revision of 5% for the current fiscal year over the past 60 days. Its share price increased 12.9% in the past year.
Citigroup has witnessed upward earnings estimate revision of 6.3% for the current year over the past 60 days. Its share price increased 21.2% in the past year.
Comerica's Zacks Consensus Estimate for the current year has been revised 12.9% upward in the last 60 days. Its shares have gained 39% in the past 12 months.
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