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BMO releases 2018 outlook, upgrades Citizens Financial

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BMO releases 2018 outlook, upgrades Citizens Financial

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* BMO Capital Markets' Lana Chan upgraded Citizens Financial Group Inc.'s stock rating as part of the analyst's 2018 outlook on U.S. regional/mid-cap banks.

Chan expects the group's median EPS to still be up 17% in 2017, and likely followed by 11% growth in 2018 and 10% in 2019. Loan growth disappointed this year, but "some modest pick-up" is anticipated. And an improved economy, tax reform and deregulation — especially the lifting of the $50 billion threshold for systemically important financial institutions — could bring another 17% to 18% upside to Chan's 2019 EPS estimates.

Providence, R.I.-based Citizens Financial, in particular, "has multiple levers" to pull. The analyst raised the stock rating to "outperform" from "market perform" and the price target by $8 to $48. Chan's other top stock picks for 2018 are BankUnited Inc. of Miami Lakes, Fla., and New York-based Signature Bank.

Notable reiteration

* TCF Financial Corp.'s plan to unwind its indirect auto lending has left "numerous questions, wrote Piper Jaffray's Nathan Race, but the analyst expects "meaningful expense and credit leverage [to] more than offset spread revenue growth challenges."

Race's projections include a portfolio run-off of $300 million to $350 million per quarter over the next two years. Consensus net interest margin could accordingly fall by 10 basis points in 2018 and by 21 basis points in 2019, although that depends on the number of Fed rate increases and how Wayzata, Minn.-based TCF manages to reinvest the excess liquidity.

The stock is rated "overweight." Race also raised the price target by 50 cents to $23.

Industry report

* A tax reform bill with a 21% corporate rate could be signed by President Donald Trump within the week. Compass Point analysts note banks are among the legislation's biggest beneficiaries, as they benefit not only from the lower taxes they themselves need to pay but from the potential boost to overall economic activity. There is also the possibility of a "steepening yield curve as the package's inflationary impact materializes."

The analysts "continue to maintain that these tailwinds will further fuel stock price appreciation, which will in turn fuel M&A as stronger stock prices equal stronger acquisition currency."