Earnings 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.

Catching up on earnings reports, Citigroup announced their results a couple weeks ago.  Citi delivered earnings of $1.24 on revenues of $17.76B.  The TBV rose to $64.71.  This compares to earnings expectations of $1.16 on $17.37B.  Last quarter, the TBV was $63.53.  The quarterly results were solid both in general and in comparison to other money center banks.  Not the best results, but very solid nonetheless.  Since interest rates continue to stay at their record lows, they were not a factor to this quarter's results.  The major factors resulted in gains from money market investments and gains finally being realized from the acquisition of the Costco credit card deal.  Expenses continue to be kept under control and the company leveraged its buyback program to start reducing share count, though not really significantly from what I can tell.

The one thing that provides a little caution is the overall lack of global growth we're seeing.  North American deposits and branded cards were strong, but the rest of the world was mostly flat, though Asia did provide a small revenue boost compared to a year ago.  Overall, the market conditions just aren't terribly favorable yet.  As usual, we've been waiting for a dovish Fed to start raising rates.  Everyone has been anticipating a hike in December, but overall numbers released lately have been weak, making it harder for me to believe it's going to happen as anticipated.  How can they raise as facts are going down when they didn't yet raise as facts were starting to look favorable?  

In the end, the company is doing the right things and now seems to be in favor with the government.  That is certainly a helpful thing.  However, while the global economy is still in the doldrums and rates stay low, I find it hard to see the stock price climb significantly.  With the raised TBV, I'm going to raise my price target to $51.75, noting this is based on current market conditions.  This is a multiple of 0.8 times the TBV, though when things start really improving we'll see the stock go up to TBV and higher eventually (a reduction in stock shares will also be needed to help this).  I see the downward risk to be around $45.  Currently, I will rank the stock a two because of the market conditions and the odds that we may see a pullback in price before you would want to pick more up.

Nothing on this site should be taken as advice, research, or an invitation to buy or sell any securities.  All views expressed are solely of my own and I am not a professional money manager.  Please consult with your financial adviser before taking any action in your own portfolio.