Despite encountering several challenges earlier this year, there are indications that the banking sector is stabilizing, with declining deposit outflows. In the Federal Reserve’s annual stress test, all major U.S. banks, including Citigroup Inc. (C), weathered a severe recession scenario. This is a sign that the nation’s banking system is resilient.
Investors would be keenly watching how well banks grappled with the deposit outflows due to the bank failures in their soon-to-be-released results.
C will release its second-quarter results tomorrow, and analysts expect the bank’s earnings and revenue to decline year-over-year. While the consensus EPS estimate of $1.41 indicated a 38.5% decline year-over-year, its revenue is expected to decline by 1.5%.
According to Dealogic, global investment banking revenues fell by 8% sequentially and 52% year-over-year in the second quarter. C is expected to report a profit decline due to a downturn in dealmaking.
C’s CFO, Mark Mason, said the company would book severance costs related to the 1,600 job cuts during the second quarter. The bank’s expenses will increase by $300 million to $400 million over the first quarter.
In this piece, I have discussed why it could be wise to wait for a better entry point in the stock.
C’s stock has gained 16% over the past nine months and 4.8% year-to-date to close the last trading session at $47.38.
Here’s what could influence C’s performance in the upcoming months:
Robust Financials
C’s total revenues, net of interest expense for the first quarter ended March 31, 2023, increased 11.8% year-over-year to $21.45 billion. Its net income rose 7% over the prior-year quarter to $4.61 billion. The company’s return on average common equity came in at 9.5%, compared to 9% in the prior-year quarter.
Its return on average tangible common equity (RoTCE) came in at 10.9%, compared to 10.5% in the prior-year quarter. Its EPS came in at $2.19, representing an increase of 8% year-over-year. Also, its income from continuing operations increased 8% over the prior-year quarter to $4.65 billion. In addition, its net interest income rose 23% year-over-year to $13.35 billion.
Mixed Analyst Estimates
Analysts expect C’s EPS for fiscal 2023 to decline 16% year-over-year to $5.97. Its revenue for fiscal 2023 is expected to increase 4.7% year-over-year to $78.90 billion. Its EPS for fiscal 2024 is expected to increase 6.9% year-over-year to $6.38. On the other hand, its revenue for fiscal 2024 is expected to decline marginally year-over-year to $78.88 billion.
Mixed Profitability
In terms of the trailing-12-month net income margin, C’s 21.22% is 18% lower than the 25.87% industry average. Likewise, its 7.76% trailing-12-month Return on Common Equity is 30.2% lower than the industry average of 11.10%.
On the other hand, in terms of the trailing-12-month Capex/Sales, C’s 8.46% is 336.5% higher than the industry average of 1.94%.
Discounted Valuation
In terms of forward non-GAAP P/E, C’s 7.93x is 11.9% lower than the 9.01x industry average. Its 1.17x forward Price/Sales is 48.1% lower than the 2.25x industry average. Likewise, its 0.47x forward Price/Book is 51.3% lower than the 0.97x 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 Quality, consistent with its mixed profitability. It has a B grade for Value, in sync with its discounted valuation.
C is ranked #2 out of 10 stocks in the Money Center Banks industry. Click here to access C’s Growth, Momentum, Stability, and Sentiment ratings.
Bottom Line
C’s profitability during the second quarter is expected to be affected due to a fall in its investment banking revenues. Moreover, the company will incur higher costs during the second quarter.
Given its mixed profitability and analyst estimates, 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. Check out these stocks from the Foreign Banks industry with an A (Strong Buy) or B (Buy) rating: Banco BBVA Argentina S.A. (BBAR), Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), and KB Financial Group Inc. (KB).
What To Do Next?
Discover 10 widely held stocks that our proprietary model shows have tremendous downside potential. Please make sure none of these “death trap” stocks are lurking in your portfolio:
C shares were trading at $47.52 per share on Thursday morning, up $0.14 (+0.30%). Year-to-date, C has gained 7.26%, versus a 18.04% 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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