Is Citigroup an Attractive Investment?

With shares of Citigroup (NYSE:C) trading around $54, 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, which is scaling back illiquid investments to comply with rules that limit risk-taking by banks, may sell about $1 billion in holdings managed by its former private-equity business, according to five people familiar with the matter. The bank is considering selling its stakes in funds managed by Citi Venture Capital International, or CVCI, a private-equity manager that Citi sold to New York-based Rohatyn Group in December, said the people, who asked not to be identified because the talks are private. Rohatyn plans to give investors in two CVCI funds the option to sell their holdings to other buyers, who would provide fresh capital for new deals, said one of the people.

T = Technicals on the Stock Chart Are Strong

Citigroup stock has been moving higher in the past couple of years. The stock is currently surging higher and looks poised to continue. 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

23.67%

30%

28%

What does this mean? This means that investors or traders are buying a minimal 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 minimal 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

589.53%

41.05%

29.47%

24.51%

Revenue Growth (Y-O-Y)

30.48%

11.38%

5.59%

5.82%

Earnings Reaction

-1.49%

1.96%

0.20%

-2.91%

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

P = Excellent 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

4.97%

0.55%

6.52%

0.81%

4.21%

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

Conclusion

Citigroup is a bellwether that offers essential financial products and services to consumers and companies worldwide. The company may sell about $1 billion in holdings managed by its former private-equity business. The stock has been moving higher over the past couple of years and is now trending higher. Over the last four quarters, earnings and revenues have been rising which has pleased investors in the company. Relative to its peers and sector, Citigroup has been a year-to-date performance leader. Look for Citigroup to OUTPERFORM.

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