Earnings Analysis: Citigroup (C)
On Friday, April 13, Citigroup announced their results for the first quarter of fiscal year 2018. Earnings came in at $1.68, beating estimates of $1.61. Revenues were in line with expectations of $16.86B, delivering results of $18.87B. The earnings number was a 24% increase from a year ago whereas the revenues were a 3% increase. It's also worth noting that operating margins were up 4% from a year ago while the efficiency ratio continues to improve for the sixth consecutive quarter, up 50 basis points to 58.4% from a year ago.
Looking deeper, Global Consumer Banking (GCB) revenues increased 6% from a year ago with solid growth in both North America and International businesses. There is a one-time boost from the sale of the Hilton brand cards which has about a 2% impact. Credit costs rose 3% representing both volume growth and seasoning of their cards business in both North America and International. NCLs grew overall in GCB, but much of this is seasonality, as there is typically more credit used after the holidays.
In the Institutional Clients Group (ICG), revenues were up 6% on solid results from both banking and Markets & Securities Solutions. Private bank and corporate lending were both up around 20% from last year (though on lower overall revenue numbers), compensating for the poor investment banking results for Total Banking whereas equities helped compensate for weaker results in the fixed income markets for Markets and Security Solutions. It's important to note that the poor performance in investment banking is in line with the industry, as the overall market struggles at this time.
Looking at Net Interest Margin, I feel a little mixed. Total interest revenue was up slightly from a year ago, which represents increased income and activity. The core NIM increased by eight basis points from last quarter to and is three basis points above where we were at a year ago. However, Citigroup NIM was again down quarter over quarter by a basis point due to lower Trading NIM which is impacted by how equities respond to rising rates. Tangible book value (TBV) increased to $61.02, up $0.86 from last quarter, after the company put forth $3B in share buybacks and dividends on the quarter.
While I am disappointed in the NIM results, I do believe the continual raises in rates will help stop the decline and likely turn it around. The company continues to show growth in the current market and is continuing to return capital to shareholders (as long as they continue to get Fed buy-in on their plans). Based on past trends, I currently estimate that the TBV for the company will hit around $64.75 by the end the year. I think Citigroup can get a 1.2 multiple on their TBV or 12 times their anticipated earnings of about $6.40. As such, I have lowered my 2018 price target to a more realistic $77.
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.
Looking deeper, Global Consumer Banking (GCB) revenues increased 6% from a year ago with solid growth in both North America and International businesses. There is a one-time boost from the sale of the Hilton brand cards which has about a 2% impact. Credit costs rose 3% representing both volume growth and seasoning of their cards business in both North America and International. NCLs grew overall in GCB, but much of this is seasonality, as there is typically more credit used after the holidays.
In the Institutional Clients Group (ICG), revenues were up 6% on solid results from both banking and Markets & Securities Solutions. Private bank and corporate lending were both up around 20% from last year (though on lower overall revenue numbers), compensating for the poor investment banking results for Total Banking whereas equities helped compensate for weaker results in the fixed income markets for Markets and Security Solutions. It's important to note that the poor performance in investment banking is in line with the industry, as the overall market struggles at this time.
Looking at Net Interest Margin, I feel a little mixed. Total interest revenue was up slightly from a year ago, which represents increased income and activity. The core NIM increased by eight basis points from last quarter to and is three basis points above where we were at a year ago. However, Citigroup NIM was again down quarter over quarter by a basis point due to lower Trading NIM which is impacted by how equities respond to rising rates. Tangible book value (TBV) increased to $61.02, up $0.86 from last quarter, after the company put forth $3B in share buybacks and dividends on the quarter.
While I am disappointed in the NIM results, I do believe the continual raises in rates will help stop the decline and likely turn it around. The company continues to show growth in the current market and is continuing to return capital to shareholders (as long as they continue to get Fed buy-in on their plans). Based on past trends, I currently estimate that the TBV for the company will hit around $64.75 by the end the year. I think Citigroup can get a 1.2 multiple on their TBV or 12 times their anticipated earnings of about $6.40. As such, I have lowered my 2018 price target to a more realistic $77.
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.
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