Regional bank stocks, like Citizens Financial Group (NYSE:CFG), have taken a beating this year due to rising interest rates as well as the implosion of several notable regional banks, like First Republic and Silicon Valley Bank, that were caught offside by rate hikes. But astute investors are noticing that some of the major regional banks, such as Citizens Financial, are now incredibly cheap.
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Legendary investor Bill Gross, often referred to as the Bond King, recently pointed out that regional bank stocks look compelling based on their bargain-bin valuations and outsized dividend yields. While concerns about the sector were valid, Gross points out that they have likely bottomed out already and that they now offer “extraordinary long-term value.”
Gross highlighted several regional bank stocks that he is buying, including KeyCorp (NYSE:KEY), Truist (NYSE:TFC), First Horizon (NYSE:FHN), and Citizens Financial.
Like Gross, I am bullish on Citizens Financial, and it looks like the most attractive from this group because it has the lowest price-to-book value and a compelling dividend yield of 5.7%.
A Time-Tested Bank
Citizens is a strong franchise with a business that has stood the test of time for nearly 200 years. The Providence, Rhode Island-based company was founded back in 1828.
Today, it has over $225 billion in consolidated assets and approximately 1,100 branches across 14 states in New England, the Mid-Atlantic region, and the Midwest, so this is not a small, fly-by-night bank, as the ‘regional bank’ moniker sometimes brings to mind. In fact, Citizens is one of the 15 largest banks in the United States by assets, so it’s more of a ‘superregional bank’ than a run-of-the-mill regional bank.
The company operates in both consumer banking and commercial banking, and it is working to grow into new verticals. In October, Citizens started Citizens Private Bank to establish a presence in wealth management, which it says will help it expand into new markets and gain traction with high-net-worth clients.
The company will open six new private banking offices through the end of this year and 2024. Citizens Financial reports that it is “making good strides so far” in this endeavor. According to Bloomberg, the company is also in talks to grow its Private Credit business.
All of this is to say that while shares of Citizens Financial are priced like they’re on their last legs, the company isn’t going away any time soon. This brings us to our next section – the stock’s rock-bottom valuation.
Shares Are on Sale
Shares of Citizens Financial are strikingly cheap. How cheap are they? They trade at just 0.66 times book value. This means that the company currently trades for just about two-thirds of what it would be worth if all of its assets were to be liquidated today, giving investors a nice margin of safety when buying shares.
This price-to-book multiple means that Citizens stands out as a bargain, even amid other cheap regional bank stocks. Truist’s price-to-book multiple of 0.84 is tempting but still higher than that of Citizens. First Horizons trades for 0.94 times book value, while shares of KeyCorp trade above book value.
Citizens Financial also looks cheap on a price-to-earnings basis. Shares trade for just 7.3 times earnings, so the stock has a valuation multiple of just over a third of that enjoyed by the S&P 500 (SPX), which currently sports a price-to-earnings multiple of 20.4.
The Providence-based bank’s management team also seems to believe that shares are undervalued, as the company bought back $243 million worth of shares during the third quarter of 2023.
Tempting Dividend Yield
Citizens Financial is also notable for its juicy dividend yield. Shares currently yield 5.7%. This yield is substantially higher than the average yield of the S&P 500 (currently 1.5%) and also higher than the yield offered by 10-year treasuries. Additionally, it’s a better yield than you’ll find from shares of the bigger banks like JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC), and Bank of America (NYSE:BAC), which all yield between 2.6% and 3%.
The dividend is also well-covered by the company’s earnings, with a payout ratio of 38.6%, so it doesn’t appear that the dividend is at risk of being cut any time soon.
Is CFG Stock a Buy, According to Analysts?
Turning to Wall Street, CFG earns a Moderate Buy consensus rating based on five Buys, nine Holds, and zero Sell ratings assigned in the past three months. The average CFG stock price target of $30.17 implies 2.1% upside potential.
A Compelling Combination of Value and Yield
Trading at roughly two-thirds of book value, Citizens Financial offers investors a solid margin of safety. This is a solid franchise that has stood the test of time for nearly 200 years, so it’s not going away any time soon, and management has its sights set on growing the business further. Investors can also enjoy the stock’s 5.7% dividend yield as they wait for shares to rebound, making Citizens Financial a compelling buy for both value investors and dividend investors.
