Can Citigroup Stock Rebound?

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.

Citigroup is preparing to trim branches in South Korea outside big urban areas this year to concentrate on more affluent customers, its chief financial officer said. Citigroup will disclose costs tied to the strategy later this year, CFO John Gerspach said yesterday during a conference call with analysts. The New York-based lender has been revising its Korea plans for 18 months, with early efforts focused on changing the mix of its loans, he said.

Chief Executive Officer Michael Corbat has scaled back consumer operations in some nations and targeted wealthier clients in the largest global cities to improve returns. Korea’s slowing growth and government efforts to curb household debt led to writedowns for at least one competitor, and Citigroup has said operations there will be a drag on Asian revenues in 2014. “It’s inevitable that banks in Korea will trim branches amid stalling profit,” said Michael Na, a Seoul-based analyst at Nomura Holdings Inc. Without strong revenue growth, “lenders can only seek cost efficiency by doing things like closing outlets and shifting toward micro branches and smart banking.”

T = Technicals on the Stock Chart Are Weak

Citigroup stock has been trading sideways over the last couple of months. The stock is currently pulling back and may need time to consolidate. 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

26.14%

76%

74%

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

February Options

Steep

Average

March 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 very 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%

0.20%

Citigroup has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have had mixed feelings 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

-5.70%

-5.16%

6.13%

1.01%

-1.93%

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 is preparing to trim branches in South Korea outside big urban areas this year to concentrate on more affluent customers. The stock has been trading sideways over the last couple of months and is currently pulling back. Over the last four quarters, earnings and revenues have been rising. However, investors have mixed feelings about recent earnings announcements. Relative to its peers and sector, Citigroup has been a poor year-to-date performer. WAIT AND SEE what Citigroup does this quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More From Wall St. Cheat Sheet: