Stock Alert for CIT Group Inc. (CIT)
  • Stock Alert for CIT Group Inc. (NYSE: CIT)
  • Stock Alert for CIT Group Inc. (CIT)
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    Stock Alert for CIT Group Inc. (CIT)

    CIT Group Inc. (CIT) is a bank holding company that provides commercial financing and leasing products, and management advisory services to clients in a variety of industries. CIT operates primarily in North America, with locations in Europe, Latin America, Australia and the Asia-Pacific region. CIT bank is its primary bank subsidiary. The Company provides financing and leasing capital to its clients and their customers in over 30 industries and 50 countries. It serves clients in a variety of industries, including transportation, aerospace and rail, manufacturing, wholesaling, retailing, healthcare, communications, media and entertainment, and various service-related industries. The Company operates through five segments: Corporate Finance, Transportation Finance, Trade Finance, Vendor Finance and Consumer Finance. In November 2009, the Company filed for bankruptcy. In December 2009, CIT emerged from bankruptcy.

    The Company was founded in 1908 and is headquartered in New York, New York.

    Share Statistics (Oct-8-10) FY

    2008

    FY

    2009

    %

    Chg

    Q2 2009 Q2 2010 %

    Chg

    Symbol CIT Revenue, $Mn 1.38B 3.99B 189.1% 889.2M 1.74B 95.7%
    Current price $40.80 Gross marg. 44.0% 37.5% 2.4% -37.4% 38.5% 202.9%
    52wk Range: $42.94-24.83 Oper. margin -17.6% 1.3% 107.4% -181.1% 12.2% 106.7%
    Avg Vol (3m): 1,520,680 Net margin -10.3% 4.6% 144.7% -182.2% 8.2% 104.5%
    Market Cap. 7.49B
    Shares Outst. 200.3M EPS, $ -2.74 -5.75 109.9% -3.11 0.89 128.6%

    Source: Reuters.com, SEC Filings.

    Financial Summary

    CIT recently reported net income for the quarter ended June 30, 2010, of $142.1 million, $0.71 per diluted share, up from $97.3 million and $0.49 per diluted share last quarter.

    Net income increased from the quarter ended March 31, 2010, as gains on sales of assets and recoveries of pre-FSA charged-off receivables more than offset a higher provision for credit losses and costs for an employee retention program announced last quarter. The second-quarter results include pre-tax net accretion and lower depreciation of $407 million resulting from fresh start accounting (“FSA”) balance sheet adjustments recorded in December 2009.

    Net interest revenue declined $31 million on lower financing assets and less net FSA accretion. However, total net revenues increased 28% sequentially as an increase in other income offset the decline in net interest revenue.

    Net finance revenue (which includes operating lease rentals and depreciation) as a percentage of average earning assets was 4.03% compared to 4.09% last quarter and includes a 3.72% benefit from FSA. Excluding the impacts from FSA and prepayment penalty fees on high cost debt, margin was 0.68% up slightly from the first quarter.

    Other income (excluding operating lease rentals) increased from last quarter due to gains on receivable sales and recoveries on receivables charged-off prior to the adoption of FSA. The prior quarter included losses on foreign currency exposures that were largely hedged during the second quarter.

    Operating expenses increased from the first quarter as costs related to an employee retention program established last quarter more than offset declines in all other expense categories.

    Continued focus on balance sheet optimization resulted in total assets declining $3.1 billion to $54.9 billion. Strategic asset sales, net portfolio collections and $800 million in new financings, enabled the paydown of $3 billion of debt. New business volume of over $1 billion was up 14% from last quarter. Assets held for sale declined during the quarter as the Company completed the sales of its Australia and New Zealand vendor business and approximately $580 million of student lending receivables.

    Preliminary Tier 1 and Total Capital ratios improved to 17.2% and 17.9%, respectively, from 15.5% and 15.9% at March 31, 2010, benefiting from both growth in common equity and a decline in risk-weighted assets.

    The Company reported net charge-offs of $106 million were up $64 million from the first quarter. Non-accrual loans of $2.1 billion increased $120 million from the first quarter, driven primarily by Corporate Finance. These credit metrics, which are after the application of fresh start accounting (post-FSA), include asset marks and other FSA-related items. However, net charge-offs do not reflect recoveries of pre-FSA charge-offs recorded in other income, which were $98 million in the second quarter and $44 million in the first quarter. In aggregate, the charge-offs, net of recoveries recorded in other income, were at levels similar to the first quarter.

    Management also evaluates credit performance using credit metrics that exclude the impact of fresh start accounting (pre-FSA). On this basis, gross charge-offs were $252 million, up $16 million from last quarter, driven by certain real estate and energy-related loans. Non-accrual loans of $3.0 billion decreased $54 million from the first quarter.

    The provision for credit losses increased from the first quarter, reflecting the recording of non-specific reserves and some incremental deterioration on loans previously discounted in FSA.

    Total cash at June 30, 2010, was $10.7 billion, up from last quarter, and consisted of $6.1 billion of cash at the bank holding company, $1.7 billion at CIT, $1.7 billion at operating subsidiaries and $1.2 billion in other restricted cash.

    During the second quarter, the Company completed a new $650 million committed conduit facility for Trade Finance and a £100 million committed UK Vendor Finance conduit facility. These transactions, when combined with first quarter financings, aggregate of more than $2.5 billion and highlight the Company’s success in re-accessing more cost-efficient funding sources.

    CIT continued to prepay high cost first lien debt during the quarter. $2.3 billion was pre-paid during the quarter and approximately $450 million just after quarter-end. $750 million was pre-paid in the first quarter, leaving $4 billion of the original $7.5 billion first lien debt outstanding. Subject to market conditions, it intends to further pay down and/or refinance the remaining first lien debt.

    Financial Strength (Oct-7-2010) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 0.00 2.71 0.81
    Current Ratio (MRQ) 0.00 3.06 0.98
    Long-Term Debt to Equity(MRQ) 443.41 60.03 82.90 126.75
    Total Debt to Equity (MRQ) 443.95 198.03 188.97 183.12

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    This is the consensus forecast among nine polled investment analysts. Against the CIT Group Inc company.

    Analyst Detail Buy Outperform Hold Underperform Sell No Opinion
    Latest 2 3 4 0 0 0
    4 weeks ago 2 2 3 0 0 0
    2 months ago 2 1 2 0 0 0
    3 months ago 2 1 2 0 0 0
    Last year 0 0 8 0 2 0

    The eight analysts offering 12-month price targets for CIT have a median target of 45.00, with a high estimate of 48.00 and a low estimate of 42.00. The median estimate represents a 10.32% increase from the last price of 40.79.

    Source: www.ft.com

    Consensus Estimates Analysis

    # of Estimates Mean High Low 1 Year Ago
    SALES (in millions)
    Quarter Ending Dec-10 4 161.50 200.50 141.00 462.00
    Quarter Ending Mar-11 4 161.85 178.20 153.80
    Year Ending Dec-10 4 724.95 777.00 675.60 1,738.65
    Year Ending Dec-11 4 575.47 708.80 433.70
    EARNINGS (per share)
    Quarter Ending Dec-10 9 0.49 0.98 0.31 -0.58
    Quarter Ending Mar-11 9 0.52 0.73 0.29
    Year Ending Dec-10 9 2.15 3.06 1.48 -2.00
    Year Ending Dec-11 9 2.54 3.75 1.70
    LT Growth Rate (%) 1 12.50 12.50 12.50 11.75

    Source: http://www.reuters.com/finance/stocks/financialHighlights?symbol=CIT

    Investment Highlights

    The Company’s sequential quarter improvement in Corporate Finance earnings was driven by higher gains on asset sales and recoveries on pre-FSA loan balances. Corporate Finance completed sales of a joint venture and other assets totaling approximately $890 million, proceeds of which were used to pay down debt. Corporate Finance new business volume increased from the first quarter. Net charge-offs both pre- and post-FSA increased from last quarter due to real estate and energy-related loans. However, net of recoveries recorded in other income, charge-offs were at similar levels to the first quarter. Post-FSA, non-accrual loans increased from March 31, 2010, due to the addition of loans in communications and media industries. On a pre-FSA basis, non-accrual loans were flat.

    The improvement in Transportation Finance results reflects higher operating lease margins. The aerospace fleet remained fully utilized. During the quarter, 6 new aircraft valued at $0.3 billion were delivered. Lease commitments are in place for all 19 aircraft to be delivered over the next twelve months. Rail revenue increased as utilization improved from 90% to 93% on modest increases in activity across most major car types, and rents improved on usage-based contracts. Non-accrual loans declined and no charge-offs were recorded.

    Trade Finance narrowed its loss, which is being driven by high cost of funds. At the end of the quarter the business closed a new committed conduit facility, which will reduce the future cost of funds. The existing client base stabilized and the rate of attrition subsided. Factoring volume totaled $6.3 billion, flat with the first quarter, contributing to level factoring commissions. Credit metrics remained comparable with the first quarter as charge-offs and non-accrual loans remain at relatively low levels.

    The decline in Vendor Finance earnings from last quarter reflected reserve strengthening related to a liquidating consumer portfolio, lower asset levels and higher allocated interest costs. Vendor Finance completed the sale of its Australia and New Zealand business on June 30, 2010, and established a committed funding facility for UK assets. New business volume was flat with last quarter. Post-FSA, net charge-offs increased from last quarter, but on a pre-FSA basis, net charge-offs declined. Recoveries recorded in other income totaled approximately $15 million in the second quarter and approximately $20 million in the first quarter. On both a pre- and post-FSA basis, non-accrual loans decreased from March 31, 2010.

    CIT remains well capitalized and liquid. The preliminary total capital ratio was 59.4% and the leverage ratio was 20.7%. Total deposits were $4.7 billion, down slightly from last quarter. The bank closed several new commercial loans this quarter. New committed loan volume rose to approximately $180 million from approximately $35 million in the first quarter, of which approximately $85 million was funded.

    Recent News

    CIT recently announced its actions to reduce high-cost debt by saying it will redeem notes that carry interest rates of more than 10%.

    Approximately $860 million of Series B second-lien notes will be redeemed at 103.5% of the principal amount. The 10.25% notes mature in 2015 and 2016. The move is to be completed November 4 and will leave outstanding $750 million of the series maturing in 2017. On September 21 CIT said it was redeeming $537 million of the series of notes maturing in 2013 and 2014.

    CIT is shrinking its balance sheet while developing less expensive sources of funds, including bank deposits, to help the company recover from bankruptcy. Before emerging from court protection in December, CIT relied on the short-term capital markets, which dried up for the Company after losses from bad loans, including subprime mortgages.

    The Company’s debt was reduced by more than 20% to $43.3 billion in the bankruptcy. It has since repaid or refinanced $7.5 billion of first-lien debt. The latest Series B redemption brings the two-week total to $1.4 billion.

    Source: http://www.cit.com/index.htm

    Technical Analysis

    Source: http://stockcharts.com

    CIT is trading above its 13 day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

    CIT has been relatively stable recently. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally, CIT is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

    The MACD for CIT currently indicates a strong bullish signal for two reasons. First, the MACD is above the signal line, a 9-day moving average. Second, the MACD is above zero, which implies that the underlying moving averages are trending higher.

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Oct7-2010 symbol Share, $ $ Mn 2010 2011 2010 2011
    SunTrust Banks Inc. STI 26.95 12.54B n/a n/a 1.43 n/a
    TCF Financial Corp. TCB 16.00 2.29B 18.66 n/a 2.00 n/a
    GATX Corp. GMT 29.87 1.38B 17.40 n/a 1.20 n/a
    Regional Banks Median 5.40B 18.03 n/a 1.54 n/a
    CIT Group Inc. CIT 40.80 8.15B 6.23 n/a 2.05 n/a

    Source: Thomson Financial

    Insider Trading Activity

    NET SHARES PURCHASE ACTIVITY

    Inside Purchases – Last 6 Months

    Shares Transaction
    Purchases 14,700 2
    Sales n/a 0
    Net Shares Purchased (Sold) 14,700 2
    Total Insider Shares Held 146.19K n/a
    % Net Shares Purchased (Sold) 11.2% n/a
    Net Institutional Purchases — Prior Qtr to Latest Qtr
    Shares
    Net Shares Purchased (Sold) (14,265,700)
    % Change in Institutional Shares Held (8.6%)

    Source: Yahoo Finance

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