Is Citigroup a Buy Post-Earnings?

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 sweat some value in early trading on Tuesday after reporting third-quarter earnings that fell just short of analyst expectations. The firm said revenues excluding special items — CVA/DVA, tax benefit, and costs associated with the Morgan Stanley Smith Barney joint venture — fell 5 percent, to $18.22 billion. On a comparable unadjusted basis, Citigroup revenues of $17.9 billion were up 30 percent on the year, a result of large one-time items in the year-ago period.

T = Technicals on the Stock Chart Are Mixed

Citigroup stock has been moving higher in the past couple of years. The stock is currently trading sideways as it digests gains from a recent bullish run. 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 between its key averages, which signals neutral price action in the near term.

C

Source: Thinkorswim

Taking a look at the implied volatility 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

25.31%

0%

0%

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

November Options

Flat

Average

December Options

Flat

Average

As of Tuesday, there is 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.

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%

0.2%

-2.91%

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

* As of this writing

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), and Wells Fargo (NYSE:WFC) — and sector?

Citigroup

JPMorgan Chase

Bank of America

Wells Fargo

Sector

Year-to-Date Return

25.76%

19.74%

23.73%

22.06%

23.82%

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 recently reported earnings that did not really please investors. The stock has been moving higher this year and is now trading sideways as it digests its gains. Over the last four quarters, earnings and revenues have been rising. However, investors have had mixed feelings about recent earnings announcements. Relative to its peers and sector, Citigroup has been a year-to-date performance leader. WAIT AND SEE what Citigroup does this coming quarter.

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