Citizens Financial Group (CFG)

Total return at 5 years: 11.7%/year = 8.7% appreciation + 3.1% dividend. The target price ($97) is ex-dividend; the $12 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $157 · Multiples $88) exceeds the market price ($64).

Today — fairly valued: at $64 trades ~27.3% below its value discounted to today (~$88); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($97) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$56.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($64) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-10.1%/year) than we project (9.4%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.2 bn of owner earnings in year 5 (vs ~$3.1 bn of our base case). It recalculates if the DCF assumptions are edited.

A bank is valued on equity (P/E × common earnings + price/tangible book), not EV: deposits and debt are funding. It returns capital via dividend + buyback —the buyback reduces the share count, so earnings per share grow faster than aggregate earnings—. Total return adds the dividend collected along the way. In edit mode, the metric, shares, dividend, and exit multiple can be adjusted.

Year 0 = TTM to 30-Jun-2026 (rolling grid). The 8-K of 16-Jul-2026 (2Q26) carries no explicit numerical guidance for full-year 2026/2027 —only qualitative confidence from the CEO in the momentum—, so the path is anchored to the trajectory: a ROTCE recovery from 9.8% (FY24) to 11.2% (FY25) and 13.9% (2Q26), driven by NIM expansion (+22bp year over year), expense discipline (the Reimagine the Bank program, operating leverage +6.4% year over year) and the Private Bank ramp (which contributed US$0.15 of EPS in 2Q26 versus US$0.11 in 1Q26). Year 1 starts at +14% (below the 2Q26 peak of +40% year over year, which is not extrapolated) and decays geometrically to +6% in year 5, a reasonable band for a regional bank recovering its margin. A net buyback of ~2%/year is modeled via the scenario's share series (not via bridge.sharesTerminal, which does not apply to this equity model). Exit P/E multiple within the bank band [10,15]: base 12.0x (12.5x at 3y), reflecting narrow/stable quality with ROTCE still below top-tier peers.

Today's multiple compresses on its own going forward as the metric per share grows (accelerated by the buyback, which reduces the share count). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—. Total return adds the dividend collected; the required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $97 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $64, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $97 in 5 years plus $12 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $88. Against the current market price ($64), the margin of safety is 27.3% (trades below the maximum → there is margin) and the total return at that price would be 11.7% annually.

• Entry multiple. P/E currently at 14×, compared with the bank band [10,15x].
• Margin of safety. It trades at a real discount to value, though short of the required margin of safety.
• Expected return. 5-year return +12% (Undervalued).

• Cash generation. Common earnings grew with real cash (ROTCE, TBVPS), not just accruals.
• Return on capital. ROTCE 12.5% TTM (13.9% in the quarter), above the 10% bar but still below top-tier peers.
• Reinvestment runway. The Private Bank ramp and Reimagine the Bank efficiency are the bank's clearest reinvestment runway.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

A bank's drivers are balance-sheet and capital drivers, not volume × price as in a marketplace: deposits and loans show balance-sheet growth, and CET1/ROTCE show how that growth translates into capital and profitability. The Private Bank ramp is the most relevant qualitative driver today: it contributed US$0.15 of EPS in 2Q26, up from US$0.11 in 1Q26.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Balance-sheet growth. Deposits +6% and loans +6% year over year at 2Q26, a moderate and sustainable pace.
• Fee growth. Fees +9% year over year, led by Capital Markets and Wealth (+22%).
• Guidance. The 2Q26 8-K does not carry explicit numeric guidance for the full year, only qualitative confidence from the CEO.

• Business recurrence. Deposits and the loan portfolio are recurring and predictable in nature.
• Pricing power. Limited: deposit and loan rates compete with digital banks with lower structural costs.
• Operating leverage. Positive and growing: +6.4% year over year in 2Q26, efficiency from 67.0% to 61.1% over six quarters.
• Behavior in recessions. Net charge-offs and provisioning rise in an adverse cycle, as with any bank; the filing does not quantify a specific stress scenario.

• !Capital adequacy (CET1)CET1 10.4% (+1.4pp above the minimum)
• !Reserve coverage (allowance / loan book)1.33% of the loan book
• ✓Credit quality (net charge-off rate)0.37% annually
• !Value creation (ROTCE − 10% bar)+2pp
• ✓Funding (deposit base)Deposits $185.6 bn

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

ⓘ Has a loan book: credit health (delinquency, coverage, normalized CECL, RoA/RoE) is evaluated separately, not with corporate solvency.

• Capital. CET1 10.4%, with a cushion of ~140bp over the effective regulatory minimum of 9.0%.
• Asset quality. Reserve coverage 152% of nonperforming loans, nonperforming loans 0.97% of the portfolio.
• Liquidity. Spot loan-to-deposit ratio of 79.5%, within a conservative range.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Of TTM common earnings (US$1,989 million), 39% goes to dividends, 37% to buybacks (with US$1,300 million of authorization remaining) and 24% is retained to build capital (CET1) and fund organic portfolio growth, with no M&A activity in the period.

• Alignment. Combined Chairman and CEO role; detail on share ownership pending from the DEF 14A proxy.
• Capital allocation. Balance among dividends, buybacks and capital retention with no M&A; prioritizes building CET1 during the Private Bank ramp.
• Candor. The 2Q26 release details business drivers and risks with concrete data, not only promotional language.

• Missing buyers: a regional bank without the media coverage of the large national banks, recovering from an adverse rate and provisioning cycle (FY23-24).
• Motivated sellers: the ROTCE improvement is recent (2025-2026) and is not yet fully reflected in the multiple, after two years of depressed earnings from the gradual runoff of the auto and education portfolios.
• The market may still be anchored on the FY24 ROTCE (9.8%) rather than the current run rate (13.9% in 2Q26), a typical perception lag after a profitability inflection.

The 2Q26 8-K does not carry explicit numeric guidance for 2026/2027 — only qualitative confidence from the CEO — so the perception-reality gap is not confirmed by elevated guidance; it rests on the ROTCE trajectory already reported.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +2%/year (+9% total): the margin of safety protects the downside. The bull (+18%/year, +127% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Credit cycle. An economic deterioration would raise net charge-offs and provisioning, reversing the ROTCE improvement.
• Rate risk. NIM compression if funding costs rise faster than the repricing of asset rates.
• Regulatory risk. Restrictions on capital distributions if CET1 comes under pressure.
• Execution. The Private Bank ramp and Reimagine the Bank efficiencies may not hold at the modeled pace.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROTCE 13% above the 10% bar, but the margin is limited (+27%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 9% at a PEG of 1.5 → reasonable for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Not applicable — the Magic Formula excludes financials and regulated businesses (EBIT/EV does not capture the operating leverage).

• Howard Marks Perception vs reality + cycle

  The price discounts -10% vs our 9%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -2%/yr, bull-scenario ceiling +15%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: cost advantage, efficient scale, switching costs, intangibles → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -10%, within what we project (9%) — the story squares with the numbers.