Baird: Buy The Dip In Citizens Financial

Citizens Financial Group Inc CFG shares were down Tuesday, dragged by macro concerns following the rise in Italian sovereign debt yields and a 14-basis point decline in the 10-year U.S. treasury yield.

The Analyst

Baird analyst David George upgraded Citizens Financial from Neutral to Outperform with a $45 price target.

The Thesis

Despite the market volatility, Baird's forecast for the second-quarter and intermediate-term industry fundamentals is intact, George said in a Wednesday note.

The analyst attributed the upgrade to the 16-percent pullback in Citizens Financial shares since mid-March amid a cooldown in investor sentiment toward asset-sensitive banks, and said the pullback has created a buying opportunity.

George said he expects solid results from the bank over the next several quarters, as the market has factored in a reasonable 3- basis point sequential improvement in net interest margin for Q2.

Every 25-basis point increase in rates adds about $15 million to Citizens' net interest income, the analyst said.

Citizens is poised to meet Q2 loan growth expectations due to improving commercial loan figures, George said.

A key risk for Citizens is "faster-than-expected deposit repricing," he said.

Citizens expects its loan-to-deposit ratio to moderate in Q2, according to Baird.

"Investors seem to underappreciate the company's excess capital position ... and a potentially more aggressive pace of capital return in this improving regulatory environment," George said.