Does Citigroup Support Higher Prices?

With shares of Citigroup (NYSE:C) trading around $43, 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 whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services. It operates in two segments: Citicorp, consisting of Citigroup’s Global Consumer Banking businesses and Institutional Clients Group, and Citi Holdings, consisting of Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool. Through its segments, Citigroup is able to provide the products and services required by consumers and businesses on a daily basis.

T = Technicals on the Stock Chart are Weak

Citigroup has suffered significant damage to its stock over the last few years. It has tried to recover from losses incurred during the Financial Crisis but has yet to reach prices seen in 2007. However, the stock is trading at the top end of a multi-year range so break above can be very positive. 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 around its rising key averages which signal neutral to bullish price action in the near-term.

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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

29.27%

36%

39%

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

Put IV Skew

Call IV Skew

May Options

Average

Average

June Options

Average

Average

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

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

21.88%

-87.8%

-12.84%

-4.04%

Revenue Growth (Y-O-Y)

-1%

-29.37%

-11.01%

-3.03%

Earnings Reaction

-2.91%

5.49%

0.6%

1.76%

Citigroup has seen mostly decreasing earnings and revenue growth. From these figures, the markets have been mixed about Citigroup’s last four earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

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

Citigroup

Bank of America

JPMorgan Chase

Wells Fargo

Sector

Year-to-Date Return

10.77%

1.7%

8.78%

5.99%

8.03%

Citigroup has been a relative performance leader, year-to-date.

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Conclusion

Citigroup is global leader in the financial industry that has taken some heat in recent years. Its stock price can serve as a witness for the damage that the company and sector as a while has taken. Earnings and revenue have been decreasing over the last four quarters but that hasn’t stopped investors from bidding the stock higher. Relative to its peers and sector, Citigroup has been a performance leader. WAIT AND SEE what Citigroup does in the coming quarter.

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