Citizens Financial Group gets an upgrade as analyst sifts through regional-banking stocks

By Steve Gelsi

Citi analyst Keith Horowitz raises bank's stock to buy after recent sell-off in sector

Saying last week's sell-off triggered by one bank's results appears to be overblown, Citi analyst Keith Horowitz on Monday upgraded Citizens Financial Group Inc. to buy from hold.

Nevertheless, bank stocks fell with the broad market on Monday as hopes dimmed for a quick rate cut by the U.S. Federal Reserve.

Despite drawing the analyst upgrade, Citizens Financial Group's stock (CFG) dropped by 1.6%, adding to recent losses.

"With the market pricing in greater credit concerns, we are stepping off the sidelines and upgrading [Citizens Financial Group]," Horowitz said.

Horowitz kept his target price for the stock at $36 a share after Citizens Financial Group's stock dropped by 7% between Jan. 30 and Feb. 2, amid pressure on the entire sector.

A profit miss from New York Community Bancorp (NYCB) has caused its stock to drop by 42% in the past three trading days and has brought down other regional-bank stocks as well.

New York Community Bancorp's stock fell another 6% Monday. The SPDR S&P Regional Banking exchange-traded fund KRE fell 2%, and the KBW Nasdaq Bank Index BKX moved lower by 1.6%.

Also read: Does New York Community Bancorp have another surprise in store for investors?

With the KBW Nasdaq Bank Index down nearly 5% since New York Community Bancorp reported, Citizens Financial Group and M&T Bank Corp. (MTB) have been the biggest underperformers, Citi analyst Horowitz said.

Although Citizens Financial Group has office-space exposure in New York and other affected markets, the bank has increased its reserves for office space and may release reserves in 2024, Horowitz said.

"We believe [this] would be a positive catalyst for the stock," Horowitz said.

Also read: New York Community Bancorp's sole traded bond fell off a cliff this week, dragging others down with it

Citizens Financial Group has also faced an earnings drag from interest-rate hedges, but the current interest-rate environment could potentially turn that into a tailwind, Horowitz said.

Horowitz also reiterated a buy rating on M&T Bank with the expectation that the company's management will "restore confidence in their credit portfolio at the mid quarter update."

M&T Bank's stock fell by 0.5% on Monday.

Overall, Horowitz said that "investors should be playing offense rather than defense in the current environment" because "recent price action creates attractive entry points."

Given that most or all of the other large regional banks reported earnings before New York Community Bancorp did, no other major surprises appear to be in the works this week.

Citizens Financial Group ranks as the 13th-largest retail bank holding company in the U.S. by assets.

Also read: 'The small, regional bank business model is unalterably broken,' says Oppenheimer analyst after New York Community Bancorp stock swoon

-Steve Gelsi

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02-05-24 1040ET

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