North America

Earnings Preview: Citigroup Q2 2017 (C)

By: Craig Bowles

Overview

Citigroup (C) is scheduled to report 2Q 2017 earnings before the opening bell on Friday, July 14th. The results are expected to come through at approximately 8:00 a.m. ET with a conference call webcast at Citigroup Investor Relations to follow at 11:30 a.m. Citigroup has the potential to impact the broader market indices, including the S&P Index Futures and corresponding ETFs. The earnings release comes after most of the other money center banks.

Outliers & Strategy

Key measures:

  • Adjusted Earnings Per Share (EPS): Analyst consensus is $1.22 (range $1.18 to $1.29). (Source: Yahoo! Finance) Consensus was $1.30 three months ago.
  • Revenues: Analyst consensus expectations are for a 0.5% y/y decrease to $17.46 bln (range $17.11 bln to $18.02 bln).
  • Citigroup shares have a Price/Book of 0.9 compared to the 5-year average of 0.7. The stock trades at 13.6x trailing earnings vs a 5-year average of 13.8x. Price/Revenue of 2.7 compares to a 5-year average of 1.9. Price/Cash Flow of 3.7 compares to a 5-year average of 4.9. A dividend yield of 1.0% compares to a 5-year average of 0.3%.
  • Analysts view Citi with 15 Buy, 7 Hold, and 3 (2 last qtr) Sell ratings (source: MarketBeat.com).
  • Insiders sold a net 5,511 shares over the last three months and a net 1,058,575 shares in the past year (source: NASDAQ.com). In June, Citigroup increased its common stock repurchase program to $15.6 billion from $8.6 billion.
  • Citigroup shares have a 1-day average price change on earnings of 2.23%. Options are pricing in an implied move of 2.54% off earnings.

Recent News

  • 07/10: Citi Pay has expanded into the U.S. following launches in Australia, Mexico, and Singapore, according to a post on BusinessInsider.com.
  • 06/28: Following positive results from the annual stress tests, the Fed approved capital return plans of all 34 banks. Citi doubled its quarterly dividend to 32c and $15.6 bln in buybacks is the second most among the banks, according to a post on CNBC.com.
  • 06/19: Despite a flattening yield curve, big banks can benefit from higher payouts, relatively low valuations, and better earnings driven by higher rates. KBW warns the “bear flattener” of the yield curve pressures income, according to a post on Barron’s.com.
  • 06/17: Large lenders are poised to increase dividends by double digits, according to a post on Barron’s.com.
  • 06/13: Bank of America, JPMorgan Chase, Wells Fargo, Citi, and others launched Zelle, a money-transfer service that is built into your mobile banking app and allows you to send money to friends, even if they use a different bank, according to a post on Barron’s.com.
  • 06/06: Morgan Stanley sees financial regulatory reform progress picking up this summer, according to a post on Barron’s.com.
  • 05/30: Citi sold its Fixed Income Analytics & Index unit to the London Stock Exchange for $685 million. KBW expects the company to continue to sell off non-core holdings, according to a post on Barron’s.com.

Technical Review

Citi’s stock underperformed other money center banks following the financial crisis but has been one of the better performers over the past year. The recent $68.91 was the highest share price since the 2009 low. Citi is the only major bank that shows an appreciable increase since the Q1 high. If the current breakout were to fail, the balance area at $60 should provide support. (Chart courtesy of StockCharts.com)

Summary

Citigroup shares have shown better relative strength versus the other big banks over the past year but haven’t shown a lot of upside since the $50/share price in August of 2009. Insiders sold nearly a million shares into the Trump rally but had been buying before that. Citi has roughly $29 bln in deferred tax assets and another $15-16 bln in excess capital which can enhance future earnings or add value in the event of a breakup. Citigroup has beaten analyst consensus by an average of 9c. Estimize consensus for Adjusted EPS of $1.27 on revenue of $17.619 bln compares to analyst consensus of $1.22 on revenue of $17.46 bln.

 

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