Earnings Analysis: Citigroup (C)
On October 12, Citigroup announced third quarter 2018 earnings results and they were rather strong. Earnings came in at $1.73, above estimates of $1.69. Revenues came in at $18.38B, which was slightly below consensus for $18.45. 75 million common shares were repurchased as a part of the $6.4B in returned capital to shareholders over the quarter. The Tangible Book Value also increased to $61.91.
Loan growth was up 3% from the same quarter a year ago and deposits were up 4%. Revenues from investing were also up nicely as the company took advantage of the volatile markets we've been experiencing since February. The fact that about half of the company's business comes from overseas also seemed to be a benefit, as there was less impact to their operations compared its peers who are mostly US based. Despite the fact that revenues missed expectations, it's not as bad as it may seem, given there was a sale of a Mexican Asset Management company during the quarter which had an effect on this.
Despite the overall positive information and results, of which Citi might've had the best quarter out of all the money center banks, the stock has taken a beating and is down at levels we haven't seen in about a year. The $64 area has consistently been a solid floor and given that management said that capital returns are accelerating in the second half of the year, I can only imagine what that will mean to the number of shares they're buying up around these levels. The flip side to that is to see the stock's price drop like this is a testament to why those shares need to be bought up. I feel like there is still too much stock supply.
I'm going to readjust my TBV estimate for 2019 to $64.90 and maintain my projection of a stock value of 1.2 times TBV for a price estimate of $77.75. This stock is clearly a one at these prices as the stock is basically selling for the price of all its assets if they were sold today without any factor to the value and revenues they're generating. Clearly a recession would be a potential problem for the stock and the company's revenues - especially in loans, but I still feel the market is overreacting to a variety of political factors. That's not to say that I think the economy is booming right now. I'm starting to see too many signs that things are stalling - housing, auto sales, loans, business investment, etc. But I do not think we are in any kind of catastrophic event that can't be turned around with a few simple decisions.
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.
Loan growth was up 3% from the same quarter a year ago and deposits were up 4%. Revenues from investing were also up nicely as the company took advantage of the volatile markets we've been experiencing since February. The fact that about half of the company's business comes from overseas also seemed to be a benefit, as there was less impact to their operations compared its peers who are mostly US based. Despite the fact that revenues missed expectations, it's not as bad as it may seem, given there was a sale of a Mexican Asset Management company during the quarter which had an effect on this.
Despite the overall positive information and results, of which Citi might've had the best quarter out of all the money center banks, the stock has taken a beating and is down at levels we haven't seen in about a year. The $64 area has consistently been a solid floor and given that management said that capital returns are accelerating in the second half of the year, I can only imagine what that will mean to the number of shares they're buying up around these levels. The flip side to that is to see the stock's price drop like this is a testament to why those shares need to be bought up. I feel like there is still too much stock supply.
I'm going to readjust my TBV estimate for 2019 to $64.90 and maintain my projection of a stock value of 1.2 times TBV for a price estimate of $77.75. This stock is clearly a one at these prices as the stock is basically selling for the price of all its assets if they were sold today without any factor to the value and revenues they're generating. Clearly a recession would be a potential problem for the stock and the company's revenues - especially in loans, but I still feel the market is overreacting to a variety of political factors. That's not to say that I think the economy is booming right now. I'm starting to see too many signs that things are stalling - housing, auto sales, loans, business investment, etc. But I do not think we are in any kind of catastrophic event that can't be turned around with a few simple decisions.
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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