Can This Huge Bank Continue to Please Shareholders in 2013?

CitigroupWith shares of Citigroup (NYSE:C) trading around $51.60, 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 provides consumer banking and credit, corporate and investment banking, securities, brokerage, wealth management and transaction services. It operates in two segments: Citicorp and Citi Holdings. Citicorp consists of the company’s Global Consumer Banking businesses and Institutional Clients Group while Citi Holdings consists of Brokerage and Asset Management, Local Consumer Lending, and Special Asset Pool. The company and its corresponding sector have received a good amount of negative press over the last few years, but they seem to be recovering. In any case, the financial sector is the backbone of the economy so look for this sector, along with its companies, to continue to see increased profits as the world gets back on track.

T = Technicals on the Stock Chart are Strong

Citigroup stock took a significant hit during the 2008 Financial Crisis from which it has yet to fully recover. The stock is now perking-up and getting ready to seek higher prices. 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.

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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

32.44%

93%

91%

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

Flat

Average

August 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 significant 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 Improving 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 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

29.47%

24.51%

-87.80%

-12.84%

Revenue Growth (Y-O-Y)

5.59%

5.82%

-33.03%

-9.60%

Earnings Reaction

0.2%

-2.91%

5.49%

0.6%

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

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P = Excellent Relative Performance Versus Peers and Sector

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

Citigroup

JPMorgan Chase

Wells Fargo

Bank of America

Sector

Year-to-Date Return

27.25%

20.95%

16.94%

13.35%

18.55%

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

Conclusion

Citigroup provides valuable and essential financial services to companies and consumers operating in a multitude of industries around the world. The stock took a good beating during the 2008 Financial Crisis but seems to be perking-up and getting ready to seek higher prices. Over the last four quarters, earnings and revenue figures have been improving which has generally pleased investors. Relative to its peers and sector, Citigroup has been a year-to-date performance leader. Look for Citigroup to OUTPERFORM.

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