Earnings Analysis: Citigroup (C)
Citigroup announced their second quarter results on Friday. Earnings beat expectations of $1.13 by posting results of $. They also delivered top line results of $17.9B, which beat expectations of $17.67B. Despite the beats, the stock has struggled to rise since the announcement, falling 1.1% last week.
The results were strong, with the company losing less than expected. They increased revenues by 2% compared to last year and are up 3% on the year so far. Branded cards were particularly strong in North America, showcasing the strength for this area as the acquisition of the Costco cards are starting to bear fruit. All regions increased their revenues with international strength showing the health returning to the global economy. Equity market trading revenues were down 11% due to low volatility, however, this is better than was expected. The company returned $2.2B of capital to the shareholders in the quarter, including repurchasing 6% of the outstanding shares. This also helped raise the TBV by 6% from last year to $67.32 Finally, the efficiency ratio was at only 59% due to increased expenses - particularly related to the Costco cards. The goal for the year is 58%, meaning they expect lower expenses in the back half of the year.
As has been typical, though, the stock seems to continue to be subject to the trends of the 10 year US Treasury rate, which has been dropping over the last week or two due to the testimony of Fed chair Janet Yellen in front of Congress. This, as well as ongoing.... circusry in Washington DC makes it harder to believe positive economic outcomes are anywhere around the corner to help the financial industry. It's important to note that these macroeconomic items tend to drive the stock and the fact that the stock had a nice run into the quarter just set it up for profit taking. The pullback isn't much of a surprise at this point, though macroeconomic conditions must continue to be watched for trouble.
Overall, I think this was a strong quarter, allowing us to see some of the benefits of the Costco card acquisition as well as some showcasing why this bank may have an upper hand in an improving global economy - given they have 58% of their revenues come from outside the US borders. This, along with the approved CCAR results of doubling the dividend from $0.16 to $0.32 and a stock repurchase plan of $15.6B puts the stock in a rather healthy position. The repurchase will help improve bottom line results as well as see an acceleration of the TBV, as somewhat represented in this quarter's results (the TBV jumped from $65.88 to $67.32). As such, I need to increase my 2017 estimates for the TBV from $67 to $69 (a 7% increase from 2016) and I will set my expectations for 2018 to $74. My price targets will align to those estimates for now, but with share repurchases having such an impact, we may reach a point where we have to start valuing the stock on earnings as well. At this point, the stock remains a 2.
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.
The results were strong, with the company losing less than expected. They increased revenues by 2% compared to last year and are up 3% on the year so far. Branded cards were particularly strong in North America, showcasing the strength for this area as the acquisition of the Costco cards are starting to bear fruit. All regions increased their revenues with international strength showing the health returning to the global economy. Equity market trading revenues were down 11% due to low volatility, however, this is better than was expected. The company returned $2.2B of capital to the shareholders in the quarter, including repurchasing 6% of the outstanding shares. This also helped raise the TBV by 6% from last year to $67.32 Finally, the efficiency ratio was at only 59% due to increased expenses - particularly related to the Costco cards. The goal for the year is 58%, meaning they expect lower expenses in the back half of the year.
As has been typical, though, the stock seems to continue to be subject to the trends of the 10 year US Treasury rate, which has been dropping over the last week or two due to the testimony of Fed chair Janet Yellen in front of Congress. This, as well as ongoing.... circusry in Washington DC makes it harder to believe positive economic outcomes are anywhere around the corner to help the financial industry. It's important to note that these macroeconomic items tend to drive the stock and the fact that the stock had a nice run into the quarter just set it up for profit taking. The pullback isn't much of a surprise at this point, though macroeconomic conditions must continue to be watched for trouble.
Overall, I think this was a strong quarter, allowing us to see some of the benefits of the Costco card acquisition as well as some showcasing why this bank may have an upper hand in an improving global economy - given they have 58% of their revenues come from outside the US borders. This, along with the approved CCAR results of doubling the dividend from $0.16 to $0.32 and a stock repurchase plan of $15.6B puts the stock in a rather healthy position. The repurchase will help improve bottom line results as well as see an acceleration of the TBV, as somewhat represented in this quarter's results (the TBV jumped from $65.88 to $67.32). As such, I need to increase my 2017 estimates for the TBV from $67 to $69 (a 7% increase from 2016) and I will set my expectations for 2018 to $74. My price targets will align to those estimates for now, but with share repurchases having such an impact, we may reach a point where we have to start valuing the stock on earnings as well. At this point, the stock remains a 2.
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