Can Citigroup Break Higher Post-Earnings?

With shares of Citigroup (NYSE:C) trading around $52, 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’s fourth-quarter profit more than doubled from a year earlier, but results missed analyst estimates as the firm’s cost-cutting efforts fell short and mortgages and fixed-income trading suffered continuing weakness. “They missed my estimates by about 9 percent,” noted Richard Staite, an analyst with Atlantic Equities. He said the bank’s trading desks performed worse than rivals and that the bank’s cost-cutting initiatives didn’t make as much progress as expected. Indeed, after rival banks Wells Fargo & Co., J.P. Morgan Chase & Co., and Bank of America Corp. released earnings that were better than expected earlier in the week, Citigroup executives now face tough questions from analysts who had been hoping Chief Executive Michael Corbat would be able to ramp up cost cuts while maintaining market share in the firm’s diverse group of banking businesses.

T = Technicals on the Stock Chart Are Strong

Citigroup stock has been moving higher in the past couple of years. However, the stock is currently pulling back and may need time to stabilize 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 above its rising key averages, which signal neutral to bullish 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

20.54%

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

February Options

Flat

Average

March Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish 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 Increasing 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

123.68%

589.53%

41.05%

29.47%

Revenue Growth (Y-O-Y)

-0.56%

30.48%

11.38%

5.59%

Earnings Reaction

-4.24%*

-1.49%

1.96%

0.20%

Citigroup has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been displeased with Citigroup’s recent earnings announcements.

* As of this writing

P = Average 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

1.19%

0.74%

9.51%

2.13%

4.39%

Citigroup has been an average relative performer, year-to-date.

Conclusion

Citigroup is a bellwether that offers essential financial products and services to consumers and companies worldwide. The company’s fourth-quarter profit more than doubled from a year earlier, but results missed analyst estimates as the firm’s cost-cutting efforts fell short and mortgages and fixed-income trading suffered continuing weakness. The stock has been moving higher over the past couple of years, but is currently pulling back. Over the last four quarters, earnings and revenues have been rising. However, investors aren’t too happy about recent earnings announcements. Relative to its peers and sector, Citigroup has been an average year-to-date performer. Look for Citigroup to OUTPERFORM.

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