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

    CIT Group Inc. (CIT) operates as the holding company for CIT bank that provides commercial financing, leasing products and other services to small and middle market businesses. It provides a combination of relationship, intellectual, and financial capital to its customers worldwide. The Company 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. It operates in five segments: Corporate Finance, Transportation Finance, Trade Finance, Vendor Finance and Consumer Finance.

    CIT was founded in 1908 and is headquartered in New York, New York.

    Share Statistics (11-Nov-10) FY

    2008

    FY

    2009

    %

    Chg

    Q3

    2009

    Q3

    2010

    %

    Chg

    Symbol CIT Revenue, $Mn 6,098.5 3,984.8 -34.7% 861.5 1,483.5 72.2%
    Current price $41.70 Gross marg. 48.5% 33.3% -31.3% -62.0% 39.5% -163.7%
    52wk Range: $24.83-$44.10 Oper. margin 1.3% 13.2%
    Avg Vol (3m): 1,487,120 Net margin -45.9% 4.6% -110.0% -119.9% 8.9% -107.4%
    Market Cap. 8.35B
    Shares Outstanding 200.26M EPS, $ -1.29 -5.75 345.7% -2.85 0.68 -123.9%

    Source: Reuters.com, SEC Filings.

    Financial Summary

    CIT reported net income for the quarter ended September 30, 2010, of $131.5 million, $0.66 per diluted share. CIT also announced that, after a review of fresh start accounting (FSA) balances and processes, it has revised its first and second-quarter results higher. As a result, second-quarter net income was revised from $142.1 million ($0.71 per diluted share) to $171.4 million ($0.85 per diluted share), while first-quarter net income was revised from $97.3 million ($0.49 per diluted share) to $115.4 million ($0.58 per diluted share).

    Total assets at September 30, 2010, were $53.0 billion, down $2.0 billion from June 30, 2010, reflecting the sale of $1.5 billion of non-core assets and portfolio run-off in excess of new business activity. Significant asset sales during the quarter included a $0.6 billion liquidating consumer portfolio in Vendor Finance, $0.6 billion of Corporate Finance loans, $0.2 billion of other Vendor assets and approximately $100 million of Transportation equipment. Assets held for sale at September 30, 2010, include essentially the entire private student loan portfolio, some government guaranteed student loans and certain energy-related Corporate Finance assets.

    Preliminary Tier 1 and Total Capital ratios improved to 18.7% and 19.6%, respectively, up from 17.5% and 18.2% at June 30, 2010, benefiting from both growth in common equity and a decline in risk-weighted assets. Book value per share at September 30, 2010, was $44.09.

    Credit

    Credit trends showed signs of stabilization, as the amount of net charge-offs and non-accrual loans each decreased modestly from the second quarter. Though down in amount, the corresponding ratios as a percentage of finance receivables increased from the prior quarter due to continued portfolio contraction. The reduction in non-accrual loans was driven largely by improvement in Corporate Finance, which was partially offset by an increase in Trade Finance. These credit metrics, which are after the application of FSA, include asset marks and other FSA-related items. Reported net charge-offs of $101 million for the third quarter, down from $106 million in the second quarter, do not reflect recoveries of pre-FSA charge-offs recorded in other income, which were $52 million in the third quarter and $113 million in the second quarter.

    Management also evaluates credit performance using credit metrics that exclude the impact of FSA. On this basis, gross charge-offs were $233 million, down $19 million from the second quarter, while non-accrual loans of $2.6 billion decreased $447 million from the second quarter, including a decline of $195 million due to student loans that were reclassified as held for sale. New inflows into non-accrual loans decreased significantly on a pre-FSA basis from the preceding two quarters.

    The reserve for credit losses increased to $397 million from $328 million at June 30, 2010, reflecting increases to specific reserves on impaired loans and non-specific reserves. Although credit metrics showed signs of stabilizing in the third quarter, we built reserves for incremental deterioration beyond the FSA discount on pre-emergence loans. The provision for credit losses decreased from the second quarter, as the build in non-specific reserves was partially offset by the reversal of reserves related to the liquidating Vendor Finance consumer portfolio that was sold.

    Liquidity and Financing

    Total cash rose to $11.2 billion at September 30, 2010, consisting of $6.5 billion at the bank holding company (BHC), $1.6 billion at CIT Bank, $1.5 billion at operating subsidiaries and $1.6 billion in other restricted cash.

    Proceeds from asset sales and net portfolio collections enabled the paydown of over $2.5 billion of debt during the quarter, including $1.5 billion of high-cost first lien debt. We repaid a total of $4.5 billion of first lien debt in 2010 and refinanced the remaining $3 billion at a lower cost with more flexible terms and with a later maturity date. In late September and early October, CIT announced the redemption of $1.4 billion of the 10.25% Series B Second Lien Notes that mature from 2013 through 2016, which will be completed in the fourth quarter using cash at the BHC.

    Source: CIT Group Inc.

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    Financial Strength (Nov-11-2010) Company Industry Sector S&P 500
    Quick Ratio (MRQ) 0.00 0.27 0.62
    Current Ratio (MRQ) 0.00 2.97 0.93
    LT Debt to Equity (MRQ) 407.05 55.51 96.06 111.71
    Total Debt to Equity (MRQ) 408.44 176.02 189.90 163.37
    Interest Coverage (TTM) 0.00 -4.33 18.71

    Source: Reuters.com, SEC Filings.

    Analyst Consensus

    Buy Outperform Hold Underperform Sell No Opinion

    This is the consensus forecast among 10 polled investment analysts. Against the CIT Group Inc company.

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

    The nine analysts offering 12-month price targets for CIT have a median target of 45.00, with a high estimate of 50.00 and a low estimate of 42.00. The median estimate represents a 4.80% increase from the last price of 42.94.

    Source: markets.ft.com

    Consensus Estimates Analysis


    # of Estimates Mean High Low 1 Year Ago
    SALES (in millions)
    Quarter Ending Dec-10 5 204.60 582.10 89.00 462.00
    Quarter Ending Mar-11 5 178.38 465.30 73.00
    Year Ending Dec-10 5 1,026.34 2,590.80 614.00 1,890.50
    Year Ending Dec-11 4 742.58 1,724.30 246.00
    EARNINGS (per share)
    Quarter Ending Dec-10 10 0.47 0.75 0.22 -0.63
    Quarter Ending Mar-11 10 0.60 0.91 0.29
    Year Ending Dec-10 10 2.44 2.84 1.84 -2.95
    Year Ending Dec-11 10 2.76 3.88 1.78
    LT Growth Rate (%) 2 11.25 12.50 10.00

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


    Investment Highlights

    CIT reported the following segment highlights for the third quarter:

    Corporate Finance

    Corporate Finance new business activity continued to improve with increases in both committed and funded loan volume. Funded loan volume increased 29% from the second quarter, which reflected a more than doubling of volume underwritten at CIT Bank. CIT was awarded agency roles and it continues to build its pipeline for new deals. Earnings declined sequentially, primarily due to lower fresh start accounting (FSA) accretion benefits on slower portfolio prepayments, reduced gains on asset sales and fewer recoveries on loans charged-off prior to the adoption of FSA. Credit metrics improved; non-accrual loans and net charge-offs each declined on both a pre-FSA and reported basis. Operating expenses also improved from the prior quarter as headcount declined 6%. Assets declined by $711 million from June 30, 2010, as new volume was more than offset by asset sales and collections.

    Transportation Finance

    Transportation Finance continued to perform well, as the Company’s commercial air fleet remains effectively fully utilized and its rail fleet utilization improved to 94%. Earnings rose slightly from the second quarter, as the benefits of higher gains on asset sales and lower operating and tax expenses were largely offset by a higher provision for credit losses and the impact of FSA that dampened net operating lease rental income. Non-accrual loans rose, primarily due to the addition of one secured loan to a commercial airline, and there were no charge-offs during the quarter. CIT took delivery of and placed six new aircraft in the third quarter and have lease commitments for all aircraft to be delivered over the next 12 months.

    Trade Finance

    Trade Finance results reflected the benefit of the financing conduit that was established at the end of the second quarter and higher commissions. Third-quarter factored volume increased to $7 billion, from $6.3 billion in the second quarter, reflecting normal seasonal trends. Factoring commissions improved modestly, as the increased volume was slightly offset by a modest reduction in rates charged. The sequential comparison is also impacted by a lower level of recoveries on accounts charged-off prior to the adoption of FSA. While net charge-offs declined and remain at modest levels, non-accrual loans increased to $199 million.

    Vendor Finance

    Vendor Finance earnings improved, reflecting the benefits of asset sales as well as lower credit and operating costs. Portfolio yields remained consistent and volume increased despite the impact of the sale of the Australia and New Zealand business at the end of the second quarter. The Company funded $542 million of new business volume in the quarter with increases across many programs and regions, including sequential growth in seven of its top 10 vendor programs. The Company also extended its Lenovo Financial Services program to Western Europe. Total financing and leasing assets declined by approximately $1 billion, reflecting asset sales and collection activity. During the quarter, the Company sold over $800 million of assets, including the liquidating consumer portfolio, the sale of which reduced credit loss reserve needs and lowered the current quarter provision for credit losses. Delinquencies and non-accrual loans each declined on both a reported and pre-FSA basis. Net charge-offs increased from the second quarter, and recoveries on assets charged-off prior to the adoption of FSA declined.

    Consumer Finance

    Consumer Finance results were negatively impacted by the transfer to assets held for sale of the Company’s private student loan portfolio and a pool of government-guaranteed loans, sales of which are anticipated to close during the fourth quarter. This transfer of $400 million of loans ($895 million pre-FSA) resulted in a $195 million decline of the pre-FSA non-accrual loans and a corresponding reduction in FSA discount of $486 million. The Company continues to manage the remaining $8.4 billion liquidating portfolio of government-guaranteed student loans. Margin was negatively impacted during the quarter due to timing differences on the reset of asset yields and debt costs. Operating expenses declined from the prior quarter as it continues to focus on improving the efficiency of servicing this portfolio.

    Recent Company News

    CIT on Wednesday said it will redeem $752 million of its second-lien notes, cutting the high-cost debt left from its bankruptcy last year. CIT filed for bankruptcy in November of 2009, only to emerge from it a month later. It intends to complete the redemption of the 10.25% notes on January 4, 2011. The Company said that, as provided under the terms of the Series B Notes, the redemption price will be 102% of the aggregate principal amount.

    “The redemption of all our Series B Notes is another milestone in our post-restructuring efforts,” said CIT chairman and CEO John A. Thain. “Once complete, we will have extinguished more than $6.5 billion of high cost debt over a twelve month period.”

    CIT said it redeemed approximately $1.4 billion of Series B Notes that matured from 2013 through 2016 in late October and early November. The Company repaid $4.5 billion of first-lien debt and refinanced another $3 billion at lower rates earlier this year, it said.

    Citing the Company’s effort to keep a lid on costs, analysts at Barclays recently raised their price target on CIT, from $46 to $48, and reiterated an Overweight rating on the stock.

    Source: CIT Group Inc.

    Technical Analysis

    Source: http://stockcharts.com

    Tuesday, CIT closed below its 13-day moving average. This is generally considered to be an indication of a bearish trend.

    CIT’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility.

    CIT’s MACD is indicating a weak bearish signal. Although the indicator is above the critical level of 0, which implies that the underlying moving averages are bullish, the MACD has crossed below its 9-day moving average or signal line. This suggests that positive momentum has begun to slow.”

    Comparative Analysis

    Company Name Ticker Price per Mrkt. Cap. P/E P/S
    Nov11-2010 symbol Share, $ $ Mn 2010 2011 2010 2011
    TCF Financial Corp. TCB 14.31 2.04 13.37 12.55 2.91 2.84
    California First National Bancorp CFNB 14.52 148.83M 23.42 23.42 6.41 6.37
    SunTrust Banks Inc. STI 25.71 12.85B n/a 30.25 1.52 1.49
    PNC Financial Services PNC 57.81 30.41B 10.81 10.27 2.05 2.14
    Regional Banks Median 14.90 n/a 1.84 n/a
    CIT Group Inc. CIT 41.70 8.35B 16.48 15.50 13.19 21.19

    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 146.24K 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 (8.59%)

    Source: Yahoo Finance

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