Which Way Is Citigroup Heading?

With shares of Citigroup (NYSE:C) trading at around $41.17, 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:

C = Catalyst for the Stock’s Movement

Citigroup is getting hit today due earnings coming in below expectations. Q4 EPS came in at $.038; $0.69 excluding CVA/DVA1 and repositioning charges. There was more than $2 billion in charges related to layoffs and lawsuits. Citigroup sees legal charges elevated, but the company doesn’t expect this to be a long-term trend. Net income increased to $1.2 billion compared to $956 million in the same quarter last year.

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Net interest margin for Q4 was 2.93 percent. This might not be spectacular compared to others in the industry, but net interest margin is expected to remain at the same level throughout 2013. More potentially good news: credit trends remain stable at favorable levels, drivers for transaction services have momentum, total loans are up 7 percent, and the Treasury will hire Citigroup to sell General Motors Company (NYSE:GM) shares. It’s always nice when friends stick together. Citigroup will also ask regulators for a limited buyback. Odds are good. It should also be noted that for FY 2013, Citigroup sees Asia revenue growth at 4 percent to 6 percent.

Now let’s take a look at some important numbers for Citigroup.

E = Equity to Debt Ratio Is Weak

The debt-to-equity ratio for Citigroup is weak. This has become commonplace for the big banks, which is disappointing. However, the balance sheet is in positive territory.  

Debt-To-Equity

Cash

Long-Term Debt

C

2.89

$798.78 Billion

$604.52 Billion

BAC

2.50

$567.49 Billion

$286.53 Billion

JPM

2.80

$921.86 Billion

$275.66 Billion

 

T = Technicals on the Stock Chart Are Strong

The stock might be taking a hit today, but the past year has been superb. Over a three-year timeframe, Citigroup has also outperformed Bank of America (NYSE:BAC) and JPMorgan Chase & Co. (NYSE:JPM).

1 Month

Year-To-Date

1 Year

3 Year

C

5.31%

4.22%

46.31%

20.81%

BAC

2.77%

-2.63%

75.31%

-29.59%

JPM

7.73%

6.53%

37.18%

13.25%

 

At $41.17, Citigroup is currently trading above all its averages.   

50-Day SMA

38.12

100-Day SMA

35.99

200-Day SMA

32.55

 

E = Earnings Have Been Steady

Annual earnings have been improving since 2008. While today’s report isn’t a great one, it would seem as though the company is heading in the right direction.

2007

2008

2009

2010

2011

Revenue ($)in billions

153.26

104.35

108.19

111.70

102.59

Diluted EPS ($)

6.70

-56.30

-7.99

3.54

3.63

 

We already know what happened this quarter. Now let’s take a look at previous quarters.  

9/2011

12/2011

3/2012

6/2012

9/2012

Revenue ($)in billions

26.86

22.89

25.00

24.08

18.97

Diluted EPS ($)

1.23

0.32

0.95

0.95

0.15

 

T = Trends Support the Industry

If we’re really honest about what is taking place with our economic recovery, then we have to wonder where we would be without Mr. Bernake. Helicopter Ben has put us on a path of reckless spending and irresponsibility. However, at the same time, he has also provided an opportunity for many people to recapture wealth they had lost during the financial crisis. Therefore, it really depends on your outlook… or if you recouped money. Mr. Berkanke’s policies will continue to favor the market in the near term. This is especially the case for banks.

Conclusion

Citigroup has officially made a turnaround. Margins are good, trading revenue has rebounded, and the company is still supported by several powerful players. Citigroup was also just upgraded to a Buy from Outperform by CLSA. As far as analysts go, 75 percent are on the Buy side. In addition to that, Citigroup has a Forward P/E of 8.77. However, the market is getting frothy at the moment. It would be difficult to imagine the market exceeding 2007 levels and then continuing to climb higher. Then again, the market will often surprise you.  

Citigroup is currently a WAIT AND SEE.

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