Stock Analysis: Citigroup (C)

Notes:

Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash

Today Citigroup announced its first quarter 2014 results.  They beat estimates of $1.15 with an adjusted earnings per share of $1.30 and had slightly less revenues compared to first quarter last year, but still beating estimates.  All in all, this was a much better than I and many others expected after all of the negative news that has been hitting the presses lately (Rejected CCAR proposal, fraud at Mexican branch, 10 year interest rates dropping, etc). 

The Good:

There are a few things I noted in the conference call I think are worth calling out besides the summary details I already provided.  First, expenses are flat to down.  Citi announced their last set of layoffs not too long ago and the company is just starting to realize the benefits.  These decreased expenses appear to have an impact on overall profits as well as the tangible book value.  The bank also grew loans and deposits over the last quarter which only helps provides them one of the highest level of Basel III capital levels.  Clearly they have plenty of capital to work with.

The Bad/Indifferent:

Citigroup might have one of the lowest price to book ratios, but that's because it's not returning anything except a 4 cent dividend.  I believe their CCAR rejection will continue to pressure the company and there may be some higher expenses as they "do whatever it takes" to get approved on their next CCAR.  In regards to questions asked on the call, I heard it stated that management has decided to focus on assuring everything is absolutely right for the next CCAR filing process in the 4th quarter - meaning they're not going to re-file for this year.  For this reason, I believe the stock will be flat to slightly up by the end of the year.  Another piece I'm a bit more indifferent on, but had an impact on this quarter's beat is the fact that there was a 673M (328 from the core business) loan loss reserve release.  This means net credit losses are doing much better - a good thing - but it also brings up a lot of arguments that this is "funny money" with numbers just shifting around from place to place to make things look good.  

My Stock Plans:

When all of the negative news was reported, I also got a little more negative - saying you shouldn't buy more unless it goes below $47 (which only happened all of last week).  Prior to that, I said buy below $50.  So far, I've had a decent handle on the stock.  2 out of 3 major banks have reported better than expected numbers so far with more to come.  At this point, I would approve of buying some stock between at $48 or lower. I think the stock has a chance to hit somewhere in the $50 range if more reports come out positively like we've heard so far.  There's also a chance it gets a medium term pop if there a number of misses and this is one of few banks that did well.  As stated before, though, I still think this stock is mostly in Limbo for much of this year.  If you've bought stock last week or at lower prices awhile ago, feel free to raise some cash for use somewhere else in your portfolio and come back later in the year to buy stock back at prices around where they've been.  Under current circumstances, I think it's possible you could get away with that kind of strategy successfully and I am considering these actions myself.