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This banking group beat earnings estimates by $0.20 last quarter, and four analysts have increased their forecasts for next quarter.

This banking group beat earnings estimates by $0.20 last quarter, and four analysts have increased their forecasts for next quarter.

CIT Group (CIT)
From Cabot Undervalued Stocks Advisor

CIT Group (CIT) operates both a bank holding company and a financial holding company that provide financing, leasing and advisory services to small and middle market businesses, consumer markets, and the real estate and railroad industries.

Financial companies occupy the “sweet spot” in America’s growing economy. Rising interest rates, lower income tax rates (both corporate and personal) and deregulation all serve to increase banks’ revenue and net income. However, the news gets better. There’s bipartisan support in the U.S. Senate to change SIFI rules–regulations that apply to systemically important financial institutions—as they apply to banks with less than $250 billion in assets.

The stock market has not factored in potential SIFI changes, largely due to an expectation of “business as usual”: the slow wheels of change in Washington D.C., partisan bickering and 2018 mid-term elections causing decision-making paralysis. What these expectations don’t take into account is that there’s a new and highly unusual administration in Washington D.C. that’s pushing for reform (just look at the suddenly-rapid changes and/or improvements in the tax code and in international trade). There are also lots of newly-nominated and appointed heads of agencies who will presumably want to make their marks by taking action, including at the Securities and Exchange Commission, the Federal Open Market Committee, the U.S. Commodity Futures Trading Commission and the Office of the Comptroller of the Currency.

Between leadership changes, bipartisan influence and a political administration that’s stressing the need to get rid of two regulations for each new regulation, I think the long list of proposed SIFI rule changes is going to see some serious action. And that will directly benefit the profitability of small- and mid-cap financial institutions.

CIT Group is expected to achieve attractive earnings per share (EPS) growth in the coming years. Consensus estimates point toward gains of 17.5% and 19.0% in 2018 and 2019. The corresponding price/earnings ratios (P/Es) are low in comparison at 14.6 and 12.3 (as of mid-December 2017), indicating that the stock is undervalued. For the most part, current estimates do not take into account enhancements from the aforementioned economic and legislative changes that are on the immediate horizon. For example, Morgan Stanley expects changes in SIFI rules to boost CIT Group’s 2020 EPS by about 13%, over and above current earnings estimates.

CIT is a mid-cap stock. The stock surpassed long-term price resistance at 50 in December 2017. That’s an extremely bullish point in a stock’s price chart to own a stock, right before the post-breakout run-up begins. I cannot give you a price target, but I am confident that CIT Group is well-positioned to capitalize on both the growing economy and revised SIFI rules that benefit mid-cap financial institutions. Strong Buy.

Crista Huff, Cabot Undervalued Stocks Advisor,, 978-745-5532, December 21, 2017