Citigroup (C), the third-biggest U.S. bank by assets, will publish its first-quarter earnings on April 12. C has undergone an overhaul with several key restructuring initiatives across its business over the past year. Is the bank poised for rebound post-earnings? Read on to learn my view.
Citigroup Inc. (C) is set to unveil its first-quarter results on April 12. Wall Street anticipates a year-over-year decline in the bank’s earnings and revenue. With C’s results expected shortly, I have discussed why waiting for an opportune entry point in the stock could be wise.
For the first quarter, C’s EPS and revenue are expected to decline 30.6% and 4.9% year-over-year to $1.29 and $20.39 billion, respectively. The company has a solid earnings history, beating the consensus estimate in three of the trailing four quarters. After reporting its fourth-quarter results, C said it expects to cut its headcount by 20,000 and incur between $700 million and $1 billion in severance costs over the medium term.
For fiscal 2024, C expects its revenue to grow 4% from 2023 to reach between $80 billion and $81 billion, excluding divestitures. The bank forecasts its net interest income, excluding market-related activity, to fall modestly as global interest rates are expected to decrease this year. It expects modest operating deposit growth.
In addition, its fiscal 2024 expenses, excluding divestitures and the FDIC, are expected to be between $53.50 billion and $53.80 billion. C’s medium-term Return on Tangible Common Equity (RoTCE) target is between 11% and 12%. C’s stock has gained 19.9% year-to-date and 34.5% over the past year to close the last trading session at $61.66.
Here’s what you might want to consider ahead of its upcoming earnings release:
Mixed Financials
C’s total revenues, net of interest expense for the fourth quarter ended December 31, 2023, declined 3% year-over-year to $17.44 billion. Its net loss came in at $1.84 billion, compared to a net income of $2.51 billion in the prior-year quarter. The company’s Return on average common equity was negative 4.5%, compared to 5% in the year-ago quarter. Also, its loss per share came in at $1.16, compared to an EPS of $1.16 in the year-ago quarter.
In addition, its total provisions for credit losses and for benefits and claims rose 92.2% year-over-year to $3.55 billion.
On the other hand, its CET1 ratio came in at 13.3%, compared to 13.03% in the year-ago quarter. Its net interest income rose 4.2% year-over-year to $13.82 billion. Also, its book value per share came in at $98.71, compared to $94.06 in the prior-year quarter.
For the fiscal year that ended December 31, 2023, C’s total revenues, net of interest expense, rose 4.1% year-over-year to $78.46 billion. Its total average assets increased 1.9% over the prior-year period to $2.44 billion. The company’s net interest income rose 12.8% year-over-year to $54.90 billion.
On the other hand, C’s net income declined 37.8% year-over-year to $9.23 billion. The company’s total provisions for credit losses and for benefits and claims rose 75.3% year-over-year to $9.19 billion.
Favorable Analyst Estimates
Analysts expect C’s EPS and revenue for fiscal 2024 to increase 3.5% and 2.1% year-over-year to $5.79 and $80.13 billion, respectively. Its EPS and revenue for fiscal 2025 are expected to grow 23.4% and 2.1% year-over-year to $7.15 and $81.84 billion, respectively.
Mixed Profitability
In terms of the trailing-12-month net income margin, C’s 13.05% is 44.4% lower than the 23.48% industry average. Likewise, its 4.24% trailing-12-month Return on Common Equity is 61.2% lower than the industry average of 10.94%. Additionally, its 0.38% trailing-12-month Return on Total Assets is 64.9% lower than the industry average of 1.09%.
On the other hand, in terms of the trailing-12-month Capex / Sales, C’s 9.31% is 361.1% higher than the industry average of 2.02%.
Mixed Valuation
In terms of forward non-GAAP PEG, C’s 0.40x is 70.2% lower than the 1.34x industry average. Its 1.47x forward Price/Sales is 41.7% lower than the 2.53x industry average. Likewise, its 0.60x forward Price/Book is 42.9% lower than the 1.05x industry average.
On the other hand, in terms of forward non-GAAP P/E, C’s 10.64x is 1.3% higher than the 10.51x industry average.
POWR Ratings Reflect Uncertainty
C has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. C has a C grade for Value, consistent with its mixed valuation. It has a C grade for Stability, in sync with its 1.50 beta.
C’s stock is trading below its 10-day moving average but above its 200-day moving average, justifying its C grade for Momentum.
C is ranked #3 out of 9 stocks in the Money Center Banks industry. Click here to access C’s Growth, Sentiment, and Quality ratings.
Bottom Line
C’s restructuring efforts are underway, and the bank expects that 2024 will be a turning point for it as it focuses on the performance of its five businesses, simplifies its structure, and transforms itself overall by shrinking its workforce and reducing management layers. In addition, improving the quality of its loan portfolio, divestment of non-core businesses, and reduced exposure to paper losses on securities improve the bank’s outlook.
All these measures are expected to improve C’s efficiency in the long term. However, its fiscal 2024 net interest income is expected to decline. The bank is expected to make more provisions to cover future loan losses from souring loans. Moreover, there’s uncertainty over how C’s restructuring efforts will pan out.
Given its mixed financials, momentum, valuation, and stability, it could be wise to wait for a better entry point in the stock.
How Does Citigroup Inc. (C) Stack Up Against Its Peers?
C has an overall POWR Rating of C, equating to a Neutral rating. You may check out these A and B-rated stocks within the Foreign Banks industry: Banco Macro S.A. (BMA), Banco Santander, S.A. (SAN), and Nedbank Group Limited (NDBKY). For exploring more Buy-rated Foreign Banks stocks, click here.
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C shares were unchanged in premarket trading Wednesday. Year-to-date, C has gained 21.01%, versus a 9.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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