Citizens Financial Group’s SWOT analysis: navigating challenges in banking stock

Citizens Financial Group, Inc. (NYSE:CFG), a prominent U.S. bank holding company with a market capitalization of $20.7 billion, has been navigating a complex financial landscape characterized by shifting interest rates, evolving consumer behaviors, and economic uncertainties. As the banking sector continues to adapt to these challenges, CFG has demonstrated resilience while facing both opportunities and obstacles in its quest for sustainable growth and profitability. According to InvestingPro analysis, the company appears to be slightly undervalued, suggesting potential upside for investors who act now.

Financial Performance and Outlook

CFG’s financial performance in the first quarter of 2025 exceeded expectations, with earnings per share (EPS) of $0.77 surpassing the consensus estimate of $0.75. Trading at a P/E ratio of 15.12x and generating revenue of $7.1 billion in the last twelve months, the company’s results were primarily driven by stronger net interest income (NII) and effective expense management. The company’s net interest margin (NIM) expanded by three basis points, contributing to the positive NII results. InvestingPro data reveals that CFG has maintained consistent dividend payments for 12 consecutive years, demonstrating its commitment to shareholder returns.

Despite the encouraging NII performance, CFG faced headwinds in fee-based revenue, which fell short of expectations. This underperformance in fee income has raised concerns among analysts about the company’s ability to diversify its revenue streams effectively.

Looking ahead, analysts project EPS for fiscal year 2025 to range between $3.81 and $3.85, with estimates for fiscal year 2026 ranging from $4.74 to $4.95. These projections reflect a cautiously optimistic outlook for CFG’s future earnings potential. However, InvestingPro notes that five analysts have recently revised their earnings estimates downward for the upcoming period, suggesting some near-term headwinds. For deeper insights into CFG’s valuation and growth prospects, including access to 10+ additional ProTips and comprehensive financial metrics, consider exploring InvestingPro’s detailed analysis platform.

Strategic Initiatives and Growth Drivers

CFG has been actively pursuing strategic initiatives to drive growth and enhance profitability. One key focus area has been the expansion of Citizens Private Bank, which has shown promising results. The company’s management believes this segment has the potential to significantly contribute to fee income growth and overall profitability in the coming years.

Another strategic move by CFG has been the management of its loan portfolio. In early 2025, the company announced the sale of $1.9 billion in education loans, demonstrating a proactive approach to optimizing its balance sheet and managing risk. This transaction is expected to be completed throughout 2025 and may impact the company’s financial metrics in the short term.

The company’s efforts to improve operating efficiency have also been noted by analysts. CFG has implemented expense reduction initiatives that are expected to enhance profitability and contribute to positive operating leverage in the future.

Challenges and Risks

While CFG has shown resilience in certain areas, it faces several challenges that could impact its performance. The pressure on fee income remains a concern, with the company acknowledging potential risks to its fee income guidance for 2025. This underscores the need for CFG to diversify its revenue streams effectively.

Credit quality is another area of focus for investors and analysts. Although CFG’s credit metrics have remained relatively stable, there has been a 3% increase in commercial criticized balances, with Commercial Real Estate (CRE) rising by 4%. This trend warrants close monitoring, especially given the uncertain economic environment.

The company’s capital position, while above regulatory requirements, has shown some pressure. CFG reported a Common Equity Tier 1 (CET1) ratio of 10.6%, which drops to 9.1% when factoring in negative Accumulated Other Comprehensive Income (AOCI). This narrow margin above the regulatory requirement of 9.0% could become a concern if economic conditions deteriorate.

Bear Case

How might continued pressure on fee income affect CFG’s performance?

The persistent underperformance in fee-based revenue poses a significant challenge for CFG. If this trend continues, it could hinder the company’s ability to achieve its medium-term profitability targets. Fee income is an essential component of diversified revenue streams for banks, providing a buffer against interest rate fluctuations. Prolonged weakness in this area may force CFG to rely more heavily on interest income, potentially increasing its sensitivity to interest rate movements and economic cycles.

Moreover, the underperformance in fee income could impact investor confidence and valuation multiples. Banks with strong and diverse fee income streams often command higher valuations due to the perceived stability of their earnings. If CFG fails to address this issue, it may lead to a re-evaluation of the company’s growth prospects and potentially result in a lower valuation relative to peers.

What risks does CFG face in achieving its medium-term ROTCE target?

CFG has set an ambitious medium-term Return on Tangible Common Equity (ROTCE) target of 16-18%. However, achieving this goal faces several obstacles. The company reported a ROTCE of 9.6% in the first quarter of 2025, indicating a significant gap to bridge.

One key risk is the potential for economic headwinds that could impact loan growth and credit quality. A slowdown in economic activity or a recession could lead to reduced demand for loans and increased credit losses, both of which would negatively affect ROTCE.

Additionally, the competitive landscape in the banking sector remains intense, with pressure on margins and a race for deposits. If CFG struggles to grow its deposit base or maintain its NIM in the face of competition, it may find it challenging to achieve the targeted ROTCE levels.

Lastly, regulatory changes or increased capital requirements could impact the company’s ability to deploy capital efficiently, potentially limiting its ROTCE improvement.

Bull Case

How could the expansion of Citizens Private Bank drive growth?

The growth of Citizens Private Bank represents a significant opportunity for CFG to enhance its fee income and overall profitability. Private banking services typically generate higher margins and more stable revenue streams compared to traditional retail banking.

By expanding this segment, CFG could attract high-net-worth clients, leading to increased assets under management and a broader range of fee-generating services such as wealth management, estate planning, and investment advisory. This diversification of revenue could help offset the pressure on traditional banking income streams.

Furthermore, the private banking segment often provides cross-selling opportunities for other products and services within the bank. Success in this area could lead to deeper client relationships, improved customer retention, and ultimately, higher profitability per client.

What potential benefits could arise from CFG’s strategic loan portfolio management?

CFG’s proactive approach to loan portfolio management, as evidenced by the sale of $1.9 billion in education loans, demonstrates the company’s commitment to optimizing its balance sheet and managing risk. This strategy could yield several benefits:

Firstly, by divesting potentially riskier or less profitable loan segments, CFG can reallocate capital to higher-yielding opportunities or areas with better growth prospects. This could lead to improved overall portfolio performance and higher returns on assets.

Secondly, strategic loan sales can help the bank manage its risk profile more effectively. By reducing exposure to certain loan types or sectors, CFG can better position itself to weather economic downturns or sector-specific challenges.

Lastly, active portfolio management can enhance the bank’s flexibility in responding to changing market conditions. By maintaining a well-balanced and diversified loan portfolio, CFG can potentially reduce earnings volatility and improve its ability to meet regulatory requirements.

SWOT Analysis

Strengths:

• Consistent NIM expansion
• Strong performance in net interest income
• Effective expense management
• Strategic growth initiatives, particularly in private banking

Weaknesses:

• Underperformance in fee-based revenue
• Narrow margin above regulatory capital requirements
• Challenges in achieving medium-term ROTCE targets

Opportunities:

• Expansion of Citizens Private Bank
• Potential for improved capital markets activity
• Strategic loan portfolio optimization
• Expense reduction initiatives driving operational efficiency

Threats:

• Economic uncertainties and potential recession risks
• Intense competition in the banking sector
• Regulatory changes impacting capital requirements or business operations
• Pressure on fee income from market conditions or changing consumer behaviors

Analysts Targets

• Barclays (LON:BARC): $49 (June 26th, 2025)
• Barclays: $49 (May 2nd, 2025)
• Truist Securities: $43 (April 17th, 2025)
• Piper Sandler: $43 (April 17th, 2025)
• RBC Capital Markets: $44 (April 17th, 2025)
• Barclays: $52 (April 3rd, 2025)
• Barclays: $52 (January 14th, 2025)
• Raymond (NSE:RYMD) James: $55 (December 18th, 2024)

Citizens Financial Group, Inc. faces a complex operating environment with both opportunities and challenges ahead. While the company has demonstrated resilience in certain areas, such as NIM expansion and strategic initiatives, it must address ongoing pressures in fee income and navigate economic uncertainties. The success of its private banking expansion and loan portfolio management strategies will be crucial in determining CFG’s ability to meet its medium-term profitability targets and create value for shareholders. Investors and analysts will be closely monitoring the company’s progress in these areas as it strives to position itself for sustainable growth in the evolving banking landscape.

This analysis is based on information available up to June 26, 2025.

InvestingPro: Smarter Decisions, Better Returns

Gain an edge in your investment decisions with InvestingPro’s in-depth analysis and exclusive insights on CFG. Our Pro platform offers fair value estimates, performance predictions, and risk assessments, along with additional tips and expert analysis. Explore CFG’s full potential at InvestingPro.

Should you invest in CFG right now? Consider this first:

Investing.com’s ProPicks, an AI-driven service trusted by over 130,000 paying members globally, provides easy-to-follow model portfolios designed for wealth accumulation. Curious if CFG is one of these AI-selected gems? Check out our ProPicks platform to find out and take your investment strategy to the next level.

To evaluate CFG further, use InvestingPro’s Fair Value tool for a comprehensive valuation based on various factors. You can also see if CFG appears on our undervalued or overvalued stock lists.

These tools provide a clearer picture of investment opportunities, enabling more informed decisions about where to allocate your funds.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.