Can Citigroup’s Stock Rebound?

With shares of Citigroup (NYSE:C) trading around $47, 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 has been asked by the U.S. Department of Justice to pay more than $10 billion to settle a probe into the bank’s sales of mortgage securities before the financial crisis, Bloomberg News reported on Friday. The report, which cited a person familiar with the investigation, said that talks broke off between the bank and prosecutors on June 9. Citigroup shares were down 1.7 percent for the day in New York trading following the report. A Citigroup spokesman declined to comment. Reuters reported in December that the Justice Department was preparing a civil fraud lawsuit against the bank that alleged investors lost tens of billions of dollars on the securities at issue.

T = Technicals on the Stock Chart are Weak

Citigroup stock has struggled to make significant progress over the past several quarters. The stock is currently pulling back and may need time to consolidate before heading higher. 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 signal neutral price action in the near-term.

C

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

22.45%

93%

90%

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

Put IV Skew

Call IV Skew

July Options

Average

Average

August Options

Average

Average

As of today, there is an average demand from call and put buyer or sellers, all neutral over the next two months. To summarize, investors are buying a very significant 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 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

0.78%

123.68%

589.53%

41.05%

Revenue Growth (Y-O-Y)

-2.19%

-0.56%

30.48%

11.38%

Earnings Reaction

4.35%

-4.34%

-1.49%

1.96%

Citigroup has seen increasing earnings and mixed 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), Wells Fargo (NYSE:WFC), and sector?

Citigroup

JPMorgan Chase

Bank of America

Wells Fargo

Sector

Year-to-Date Return

-8.87%

-2.19%

-0.96%

14.30%

1.57%

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 has been asked by the U.S. Department of Justice to pay more than $10 billion to settle a probe into the bank’s sales of mortgage securities before the financial crisis. The stock has struggled to make significant progress over the past several quarters and is currently pulling back. Over the last four quarters, earnings have been rising while revenues have been mixed, 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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