Where Will Citigroup Go Post-Earnings?

With shares of Citigroup (NYSE:C) trading around $48, is C an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Citigroup is a global diversified financial services holding company providing consumers, corporations, governments, and institutions with a broad range of financial products and services. It operates in two segments: Citicorp and Citi Holdings. The company’s products and services are consumer banking and credit, corporate and investment banking, securities brokerage, wealth management, and transaction services to consumers, corporations, governments, and institutions worldwide.

Citigroup on Monday reported net income for second-quarter 2014 of $181 million, or 3 cents per diluted share, on revenues of $19.3 billion. This compared to net income of $4.2 billion, or $1.34 per  diluted share, on revenues of $20.5 billion for second-quarter 2013. Second-quarter 2014 results included the impact of a $3.8 billion charge ($3.7 billion after-tax) to settle RMBS and CDO-related claims, which consisted of  $3.7 billion in legal expenses and a $55 million loan loss reserve build, each recorded in Citi Holdings. CVA/DVA was negative $33 million (negative $20 million after-tax) in second-quarter 2014, compared to positive $477 million ($293 million after-tax) in the prior year period. Excluding CVA/DVA in both periods, second-quarter revenues of $19.4 billion declined 3 percent from the prior-year period. Excluding CVA/DVA and the impact of the mortgage settlement in the second-quarter 2014, earnings were $1.24 per diluted share, a 1 percent decline from prior year earnings of $1.25 per diluted share.

T = Technicals on the Stock Chart Are Mixed

Citigroup stock has struggled to make significant progress over the past several quarters. However, the stock is currently surging higher and looks set to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Citigroup is trading between its rising key averages, which signals neutral price action in the near-term.

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Citigroup options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Citigroup options

18.35%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

August Options

Average

Average

September Options

Average

Average

As of Monday, there is an average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Mixed Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Citigroup’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Citigroup look like and more importantly, how did the markets like these numbers?

2014 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

-0.8%

0.78%

123.68%

589.53%

Revenue Growth (Y-O-Y)

-5.59%

-2.19%

-0.56%

30.48%

Earnings Reaction

3.02%*

4.35%

-4.34%

-1.49%

*As of this writing.

Citigroup has seen increasing earnings and decreasing revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings about Citigroup’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Citigroup stock done relative to its peers – JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) — and sector?

Citigroup

JPMorgan Chase

Bank of America

Wells Fargo

Sector

Year-to-Date Return

-9.81%

-4.58%

-1.21%

13.41%

-1.54%

Citigroup has been a poor relative performer, year-to-date.

Conclusion

Citigroup is a bellwether that offers essential financial products and services to consumers and companies worldwide. The company on Monday reported second-quarter earnings. The stock has struggled to make significant progress over the past several quarters but is currently surging higher. Over the last four quarters, earnings have been rising while revenues have been decreasing, which has produced mixed feelings among investors. Relative to its peers and sector, Citigroup has been a poor year-to-date performer. WAIT AND SEE what Citigroup does this quarter.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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