Can Citigroup Break Higher?

With shares of Citigroup (NYSE:C) trading around $49, 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.

Michael Corbat took over as chief executive of Citigroup in 2012 after a scarring experience during the financial crisis, and quickly began cutting back the bank’s sprawling global reach. The third-largest U.S. lender by assets has since closed unprofitable consumer businesses from Pakistan to Paraguay. But Pramit Jhaveri, Citi’s chief executive in India, is in a bullish mood. He has seen his country included in the company’s crucial “invest-to-grow” bracket of about 20 fast-expanding markets. That is a licence to pursue growth in what will become the world’s third largest banking system by assets during the next two decades. “Mike has been very clear, when he was out here in September last year,” says Mr Jhaveri. “Growth is what we are focused on. Execution and growth.”

T = Technicals on the Stock Chart Are Mixed

Citigroup stock has been trading sideways over the last couple of months. The stock is currently trading mid range 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 below its rising key averages which signal neutral to bearish 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

24.67%

46%

44%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Steep

Average

April Options

Steep

Average

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

-4.34%

-1.49%

1.96%

0.2%

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

P = Weak 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

-4.47%

0.15%

6.36%

1.74%

1.94%

Citigroup has been a poor 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 chief executive in India, Pramit Jhaveri, has been in a bullish mood lately. The stock has been trading sideways over the last couple of months and may need time to stabilize before heading higher. Over the last four quarters, earnings and revenues have been rising, which has left investors in the company optimistic. Relative to its peers and sector, Citigroup has been a poor year-to-date performer. WAIT AND SEE what Citigroup does this quarter.

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