Earnings Analysis: Citigroup (C)
Two weeks ago, Citigroup announced first quarter results for 2017. The company exceeded expectations, as did its peers, by reporting earnings of $1.35 and revenues of $18.12B. Expectations were for $1.24 and $17.83B respectively. Revenue growth came from both consumer and institutional banking growth and success. The Costco card purchase is still working through its steps to realize profits to the company, but it is making good strides and is on track to be accretive in the second half of the year. Meanwhile the trading arms are having success, helping round out gains overall. Meanwhile the company continues to shed non-core assets and returned $2.2B to shareholders over the quarter through dividends and share buybacks (about 6% of total outstanding shares over the last year). These gains resulted in an increase of the TBV to $65.94.
It is worth noting that some of these earnings beats are based off of one-time gains, however overall performance within the company is on target with management's expectations. They were able to grow earnings in both institutional and consumer business lines, loans and deposits also grew while the company's efficiency rating was just below their 58% target. The company continues to release legacy products that was now wrapped into the "Corporate - Other" category due to the fact that the Citicorp division was too small to provide value as a separate division anymore.
As management looks ahead, they continue to see growth in the US and abroad. They're still focused on investing in the Mexico division to drive out further efficiencies and continue growth of the region. Pending improvements such as decreased regulations and a changed tax code are seen as a matter of when they happen, not if. As such, they anticipate an economy and consumer base that will get more positive. Second quarter results aren't expected to be anything amazing, given that most growth will be inorganic. Costco will provide much of that inorganic growth. Mortgage revenues are expected to still be down as well.
In short, the Citigroup is doing well, however it's not growing organically right now. Capital reserves are more than well enough under control and they've submitted an aggressive request to return capital to shareholders, which they anticipate to be passed. The company has the capacity to buy back approximately 9% of their outstanding shares before the stock reaches TBV - meaning every share they buy is essentially a profit for them, as it should be for you too. Earnings, growth prospects, stock price, and the growth of the TBV while having room to buy back more shares has me upgrading the stock to a 1, though I'd rather see it pull back under $58 to buy, these are still good prices to start a position. Despite the upgrade, I still maintain my price target of $68 as an anticipation of where the TBV will be by the end of the year.
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. Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.
It is worth noting that some of these earnings beats are based off of one-time gains, however overall performance within the company is on target with management's expectations. They were able to grow earnings in both institutional and consumer business lines, loans and deposits also grew while the company's efficiency rating was just below their 58% target. The company continues to release legacy products that was now wrapped into the "Corporate - Other" category due to the fact that the Citicorp division was too small to provide value as a separate division anymore.
As management looks ahead, they continue to see growth in the US and abroad. They're still focused on investing in the Mexico division to drive out further efficiencies and continue growth of the region. Pending improvements such as decreased regulations and a changed tax code are seen as a matter of when they happen, not if. As such, they anticipate an economy and consumer base that will get more positive. Second quarter results aren't expected to be anything amazing, given that most growth will be inorganic. Costco will provide much of that inorganic growth. Mortgage revenues are expected to still be down as well.
In short, the Citigroup is doing well, however it's not growing organically right now. Capital reserves are more than well enough under control and they've submitted an aggressive request to return capital to shareholders, which they anticipate to be passed. The company has the capacity to buy back approximately 9% of their outstanding shares before the stock reaches TBV - meaning every share they buy is essentially a profit for them, as it should be for you too. Earnings, growth prospects, stock price, and the growth of the TBV while having room to buy back more shares has me upgrading the stock to a 1, though I'd rather see it pull back under $58 to buy, these are still good prices to start a position. Despite the upgrade, I still maintain my price target of $68 as an anticipation of where the TBV will be by the end of the year.
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. Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.
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.
Comments
Post a Comment