North America

Earnings Preview: Citigroup Q3 2017 (C)

By: Craig Bowles

Overview

Citigroup (C) is scheduled to report 3Q 2017 earnings before the opening bell on Thursday, October 12th. 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 10:00 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): (If unavailable, Earnings Per Share (EPS) from Continuing Operations is the comparable measure.) Analyst consensus is $1.30 (range $1.22 to $1.38). (Source: Yahoo! Finance) Consensus was $1.30 three months ago, as well.
  • Revenues: Analyst consensus expectations are for a 0.3% y/y increase to $17.81 bln (range $17.36 bln to $18.37 bln).
  • Citigroup shares have a Price/Book of 1.0 compared to the 5-year average of 0.7. The stock trades at 14.8x trailing earnings vs a 5-year average of 13.8x. Price/Revenue of 2.9 compares to a 5-year average of 1.9. Price/Cash Flow of 18.3 compares to a 5-year average of 4.9. A dividend yield of 1.1% compares to a 5-year average of 0.3%.
  • Analysts view Citi with 15 Buy, 8 Hold, and 2 Sell ratings (source: MarketBeat.com).
  • Insiders sold a net 40,617 shares over the last three months and a net 1,098,579 shares in the past year (source: NASDAQ.com). In June 2017, 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 1.81%. Options are pricing in an implied move of 2.68% off earnings.

Recent News

  • 09/22: Citigroup announced that it expects to boost its revenue growth in China by tapping into opportunities presented by Beijing’s Belt & Road initiative including mergers and acquisitions, cash management, trade finance and hedging, according to a post on Reuters.com.
  • 09/11: Citigroup CFO warned that third-quarter total markets revenues were 15 percent less than a year earlier when volatility was boosted by reactions to the Brexit vote and U.S. elections. Changes to bank regulations are going more slowly than anticipated due to vacant positions at the Federal Reserve and Treasury Department, according to a post on Reuters.com.
  • 09/20: The Fed will start winding down its controversial “quantitative easing” strategy under which it bought trillions of dollars in bonds, according to a post on MarketWatch.com.
  • 09/08: Oppenheimer thinks bank stocks are back to trading as bond proxies but sees the valuation of bank stocks, increased profitability, massive buyback authorizations, de-risked balance sheets and modest underlying loan growth outweighing negatives from North Korea, hurricanes and continued interest rate increases, according to a post on Barron’s.com.
  • 08/18: Credit Suisse believes credit quality could be a bright spot for the banks. The typically slow season of July and August in capital markets means a pickup will have to happen in September, according to a post on Barron’s.com.
  • 07/27: As a result of Britain’s decision to leave the European Union, Citigroup revealed its plans to have its main footprint in Frankfurt and continues to increase its presence in other key EU cities, according to a post on Reuters.com.
  • 07/25: Citigroup outlined its plan to grow profits and return at least $60 billion to shareholders. Citigroup explained that it intends to grow its stock trading and its consumer banking while making operations more efficient and shrinking its number of outstanding shares. By 2020, Citigroup expects to generate $9 per share in profit, up 80 percent from the $5 per share it has produced over the last year, according to a post on Reuters.com.
  • 07/22: KBW estimated that the big banks, including Citigroup, could get a cumulative earnings boost averaging 30% if a series of regulatory-relief actions take place—among them, the capital rule on risk-free deposits, a relaxation of the Volcker rule, and a reduction in the excess capital that large U.S. banks hold relative to overseas rivals, 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 the best performer in 2017. The recent highs are the highest share prices since the 2009 low. The stock having had such a long period of being relatively flat suggests the breakout duration is likely to be underestimated. The previous balance area is in the upper $60s. (Chart courtesy of StockCharts.com)

Summary

Citigroup shares have shown strong relative strength versus the other big banks over the past year. Increased stock buybacks appear to be part of a plan to return at least $60 billion to shareholders. Insiders sold nearly a million shares into the Trump rally but had been buying before that. Citi has tens of billions of deferred tax assets and 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 7c the past four quarters. Estimize consensus for Adjusted EPS of $1.32 on revenue of $17.904 bln compares to analyst consensus of $1.30 on revenue of $17.81 bln.

 

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