Will Citigroup Break Out?

With shares of Citigroup (NYSE:C) trading around $45, 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 and Citi Holdings. The company’s products and services include: consumer banking and credit, corporate and investment banking, securities brokerage, wealth management, and transaction services to consumers, corporations, governments, and institutions worldwide. Citigroup operates in a financial industry that is the backbone of just about every economy. The products and services offered by Citigroup are essential to day-to-day business in just about every industry and for every consumer. As long as there are economies, companies like Citigroup are here to stay.

T = Technicals on the Stock Chart are Strong

Citigroup stock saw a disastrous decline during the 2008 Financial Crisis that took it down to prices not seen for decades. The stock is now trying to regain its footing and has formed a value price range over the last few years. Citigroup stock is at the top of this value price range where a strong break above may be very positive for the stock. 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.

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Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Citigroup Options

27.21%

26%

25%

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

May Options

Flat

Average

June 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 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 been improving its earnings and revenue over the last four quarters. From these figures, 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, Bank of America (NYSE:BAC), HSBC (NYSE:HBC), JPMorgan Chase (NYSE:JPM), and sector?

Citigroup

Bank of America

HSBC

JPMorgan Chase

Sector

Year-to-Date Return

17.95%

5.77%

3.36%

11.42%

10.96%

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

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Conclusion

Citigroup operates in a financial industry that serves as the backbone to economies around the world. The stock has struggled to get to pre-Financial Crisis prices but may be getting ready to break above an established range. Earnings and revenue figures have been improving in recent quarters which has satisfied 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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