Citigroup (C), the third-largest U.S. bank by assets, will report its first-quarter results on April 12. C has undergone a revamp over the past year with several key restructuring initiatives across its business. Is the bank due for a recovery after the earnings figures? Read on to find out my opinion.
Citigroup Inc. (C) is scheduled to report its first-quarter results on April 12. Wall Street expects the bank’s profits and revenue to decline year-over-year. With C’s results expected shortly, I discussed why it might make sense to wait for a good entry point for the stock.
For the first quarter, C’s earnings per share and revenue are expected to decline 30.6% and 4.9% year-over-year to $1.29 billion and $20.39 billion, respectively. The company has a solid earnings history, beating consensus estimates in three of the last four quarters. After reporting fourth-quarter results, C said the company expects to reduce its workforce by 20,000 and incur severance costs of $700 billion to $1 billion in the medium term.
For fiscal 2024, C expects revenue to grow 4% from 2023 to $80 billion to $81 billion (excluding divestitures). The bank forecasts a slight decline in its net interest income (excluding market-related activities) as global interest rates are expected to decline this year. Moderate growth in operating deposits is expected.
Additionally, the company’s fiscal 2024 expenses, excluding divestitures and FDIC, are expected to be between $53.50 billion and $53.80 billion. C’s medium-term return on tangible common equity (RoTCE) target is between 11% and 12%. C’s stock has gained 19.9% year-to-date and 34.5% over the past year, closing the most recent trading session at $61.66.
Here’s what you should consider ahead of the upcoming earnings release:
Mixed Financials
C’s total revenue, net of interest expense, decreased 3% year-over-year to $17.44 billion in the fourth quarter ended December 31, 2023. Net loss was $1.84 billion, compared to net income of $2.51 billion in the year-ago quarter. The company’s return on average common equity was negative 4.5%, compared to 5% in the year-ago quarter. Additionally, loss per share was $1.16, compared to earnings per share of $1.16 in the year-ago quarter.
Additionally, total provisions for credit losses and benefits and claims increased 92.2% year-over-year to $3.55 billion.
On the other hand, the CET1 ratio was 13.3% compared to 13.03% in the same quarter last year. Net interest income increased 4.2% year over year to $13.82 billion. Additionally, book value per share was $98.71, compared to $94.06 in the year-ago quarter.
For the fiscal year ended December 31, 2023, C’s total revenue, net of interest expense, increased 4.1% year over year to $78.46 billion. Average total assets increased 1.9% to $2.44 billion compared to the same period last year. The company’s net interest income increased 12.8% year over year to $54.90 billion.
On the other hand, C’s net income fell 37.8% year-on-year to $9.23 billion. The company’s total provisions for credit losses and benefits and claims increased 75.3% year-over-year to $9.19 billion.
Favorable analyst estimates
Analysts expect C’s fiscal 2024 earnings per share and revenue to rise 3.5% and 2.1% year-over-year to $5.79 billion and $80.13 billion, respectively. Fiscal 2025 earnings per share and revenue are expected to rise 23.4% and 2.1% year-over-year to $7.15 billion and $81.84 billion, respectively.
Mixed profitability
In terms of net profit margin over the last 12 months, C is 13.05%, 44.4% lower than the industry average of 23.48%. Likewise, the company’s return on equity over the last 12 months was 4.24%, 61.2% below the industry average of 10.94%. Additionally, the company’s return on assets over the past 12 months was 0.38%, 64.9% lower than the industry average of 1.09%.
In terms of capital expenditure/sales over the last 12 months, C is 9.31%, 361.1% above the industry average of 2.02%.
Mixed review
In terms of forward non-GAAP PEG, C’s 0.40x is 70.2% below the industry average of 1.34x. Its forward price-to-sales ratio of 1.47 is 41.7% below the industry average of 2.53. Likewise, its forward price-to-book ratio of 0.60 is 42.9% below the industry average of 1.05.
On the other hand, C’s non-GAAP forward P/E ratio of 10.64x is 1.3% higher than the industry average of 10.51x.
POWR Ratings reflect uncertainty
C has an overall rating of C, which equates to Neutral in our POWR rating system. POWR Ratings are calculated taking into account 118 different factors, each weighted optimally.
Our proprietary scoring system also rates each stock across eight different categories. C has a grade of C for Value, consistent with its mixed rating. It has a grade of C for stability, in sync with its beta of 1.50.
C’s stock is trading below its 10-day moving average but above its 200-day moving average, justifying a “C” rating for Momentum.
C is ranked #3 out of 9 stocks in the Money Center Banks industry. Click here to access C’s growth, sentiment and quality scores.
Bottom line
C’s restructuring efforts are underway and the bank expects 2024 to be a turning point for it as it focuses on the performance of its five business units, simplifies its structure and overall strengthens itself by downsizing its workforce and reducing the Management levels redesigned. Additionally, improving the quality of its loan portfolio, divestment of non-core businesses and reduced exposure to paper losses on securities are improving the bank’s prospects.
All of these measures are intended to improve the efficiency of C in the long term. However, the company’s net interest income is expected to decline in fiscal 2024. The bank is expected to set aside more reserves to cover future credit losses from bad loans. In addition, there is uncertainty about the impact of C’s restructuring efforts.
Given the mixed financials, momentum, valuation and stability, it might be prudent to wait for a better entry point for the stock.
How works Citigroup Inc. (C) Compete with your competitors?
C has an Overall POWR Rating of C, which is a Neutral rating. You can check out these A and B rated stocks in the foreign banking industry: Banco Macro SA (BMA), Banco Santander, SA (SAN) and Nedbank Group Limited (NDBKY). Click here to discover more Buy stocks in Foreign Banks.
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C shares were flat in premarket trading on Wednesday. Year-to-date, C has gained 21.01%, while the benchmark S&P 500 index has gained 9.60% over the same period.
About the Author: Dipanjan Banchur
Dipanjan was interested in the stock market since his elementary school days. This led to him obtaining a master’s degree in finance and accounting. As an investment analyst and financial journalist, Dipanjan currently has a keen interest in reading and analyzing emerging trends in the financial markets.
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