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On May 30, 2014, we issued an updated research report on Citigroup Inc. (C - Analyst Report). The company exhibits decent fundamentals amid several ongoing issues.

We remain optimistic owing to Citigroup’s efforts to contain costs and drive operational efficiency. Notably, Citigroup expects to achieve around $2.2 billion of annual savings from the initiatives it has in place.

Further, the company is continuing to offload distressed assets from its Citi Holdings unit to boost earnings and focus more on core operations. Notably, Citi Holdings’ assets declined 23% from the prior-year quarter to $114 billion and comprised only 6% of the company’s total assets at the end of first-quarter 2014.

Citigroup exhibited a strong capital position in the 2014 stress test. Though the 2014 capital plan rejection by the Federal Reserve raised concerns, it should be noted that the rejection was based on certain “qualitative reasons”. As the company is working on the glitches, we believe it has enough potential to get the Fed’s nod on its 2015 capital plan.

Citigroup’s first-quarter 2014 earnings per share of $1.30 outpaced the Zacks Consensus Estimate by 10.2%. Also it came a penny above the prior-year earnings. Results were aided by lower expenses, partially offset by a decline in revenues. Improved credit quality was another positive.

Despite the company’s strengths, we remain cautious owing to several issues faced by Citigroup. These include absence of steady growth in revenues, escalating litigation issues and the prevailing stringent regulatory landscape.

Analysts’ bearish stance on the stock was reflected in the movement of the Zacks Consensus Estimate over the past 60 days. For 2014, the Zacks Consensus Estimate declined 1.7% to $4.74 per share while for 2015 it fell 2.1% to $5.47 per share.

Citigroup currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

KCG Holdings, Inc. (KCG - Snapshot Report), Woori Finance Holdings Co., Ltd. (WF) and Central Pacific Financial Corp. (CPF - Snapshot Report) are among the better-ranked stocks in the finance sector. All these stocks hold a Zacks Rank #1 (Strong Buy).

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