Stock Analysis: Citigroup (C)

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.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Today Citigroup announced first quarter 2015 results.  Earnings beat analyst expectations, coming in at $1.51 and revenues were basically in line with expectations, with results of $19.8B (revenue estimates apparently were raised from the number I researched back in my weekly summary of $19.3B).  Tangible book value was listed at $57.66.  Additionally, despite currency conversion and regulatory considerations, return on assets were 1.05%, which was higher than the .9% target.  CEO Michael Corbat added to all of this with the key statement of "we are on track to hit our financial targets for the year."  

Concerns to note were that revenues were down 2% from last year and this trend doesn't seem to be stopping yet, with interest rates near their all-time lows.  Also as one of the most international banks in the sector, currency conversion continues to be a concern.  While the US dollar has paused its ascent for now, many believe it's not done going up yet and with the looming Fed rate hikes, it's likely to have reduce income from international locations when converted.  These are things that have been known for awhile now and I also believe it was priced into the stock when we watched it slip down to $51 and below.  

Finally, I think it's important to note that with the CCAR decisions to allow Citigroup to start returning capital to shareholders, they were permitted to start buying back shares of stock as of April first.  They confirmed that they started buying stock immediately around that time and is a likely driver behind the gradual increase in the price of the stock since then (it was priced just over $51 when the buying began).  When the stock is priced below book value, as it currently is, the management team considers the stock to be undervalued and they won't be hesitating to continue the buyback within their allowance - this may include continuing to sell more assets from Citi Holdings and asking the Fed to buy back more stock.  Nothing says it will happen, but it's something to keep an eye out for as analysts pushed for it some on the call.

In my opinion, this was a strong quarter - especially considering the fact that people expected a weak quarter due to weather, the US Dollar, and low interest rates.  The company feels like they will hit their financial targets and from what I saw in the call, I feel they will be able to meet those goals as well.  That being said, I don't see anything other than the share buyback program that can get the stock moving higher at an accelerated pace.  As such, I am maintaining my 2015 target tangible book value and price target of $59 and maintain my rating for the stock as a 2.  Were the stock to fall below $53 again, it would be worthy of purchase, however I find that price less likely to be seen now that the company can buy their own stock.