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Will Citigroup (C) Stock's Rally Continue Post Q4 Earnings?
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We expect Citigroup Inc. (C - Free Report) to beat earnings expectations when it reports its fourth-quarter and 2016 results tomorrow, before the opening bell.
Driven by a decline in operating expenses, Citigroup had delivered a positive earnings surprise of nearly 8% in the last quarter. Also, the company recorded higher fixed income market revenues and investment banking revenues. However, a rise in cost of credit was a headwind.
This earnings beat translated in to improved price movement for the company. Gradually improving operating environment also supported the price performance. For the three-month period ended Dec 31, 2016, Citigroup’s shares increased nearly 8.8%.
Will the rally in stock price continue post fourth-quarter earnings release? It majorly depends on whether the firm is able to maintain its trend of beating earnings over the last four quarters.
Our quantitative model predicts that an earnings beat is quite likely. Here is why:
Chances of Citigroup beating the Zacks Consensus Estimate in the fourth quarter are high. This is because the stock has both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: The Earnings ESP for Citigroup is 1.79%. This is because the Most Accurate Estimate of $1.14 is above the Zacks Consensus Estimate of $1.12.
Zacks Rank: Citi’s Zacks Rank #2 (Buy) further increases the predictive power of ESP.
Moreover, the earnings estimate for the upcoming release indicates a year-over-year rise of nearly 5.8%. In addition, the Zacks Consensus Estimate for Citigroup for the fourth quarter has been witnessing upward revisions, for the last 30 days.
Factors to Influence Q4 Results
Improvement in Trading Revenues: In Dec 2016, Citigroup’s Chief Financial Officer – John Gerspach – signaled about improved trading income in the quarter to be reported, at a conference in New York. The company expects a 20% rise in trading revenues on a year-over-year basis, driven by strength in trading activities.
Consumer Banking Revenues to Exhibit Growth: In consumer banking, management anticipates generating year-over-year revenue growth in constant dollars in North America. However, seasonal decline in mortgages is expected in the fourth quarter.
International consumer revenues are estimated to grow modestly, resulting in year-over-year improvement in both Asia and Mexico, as well as positive operating leverage in the regions.
Expense to Trend Lower: On the cost front, Citigroup foresees core expenses to be down marginally in the fourth quarter, on a sequential basis, reflecting the absence of certain non-recurring costs, reduced compensation expense and other efficiency savings. These are likely to be partially offset by seasonally higher marketing expenses and ongoing investments.
Margin Pressure to Ease: Management projects net interest margin to be stable compared with the third-quarter level of 286 basis points. While the Fed increased the rates in mid December and simultaneously Citigroup raised its prime rate to 3.75%, the favorable impact of the same will not be recorded in the fourth quarter.
Investment Banking Fees to Decline: Regarding investment banking, management predicts revenues to be broadly stable sequentially, on assumptions of market with favorable conditions. Notably, per the Thomson Reuters data, industry-wide investment banking fees are expected to be down. Likewise, Citigroup is also likely to face a challenging quarter.
Credit Costs to Rise: Management anticipates cost of credit in Citicorp to be higher sequentially, on the assumption that credit costs in Institutional Clients Group normalize compared to the benefit in third quarter. Further, net credit losses are projected to be higher as the Costco portfolio begins to incur losses and the impact of volume growth.
Stocks that Warrant a Look
Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.
M&T Bank Corporation (MTB - Free Report) is slated to release results on Jan 19. It has an Earnings ESP of +0.50% and carries a Zacks Rank #3.
KeyCorp (KEY - Free Report) has an Earnings ESP of +6.90% and carries a Zacks Rank #2. The company is slated to release results on Jan 19.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>
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Will Citigroup (C) Stock's Rally Continue Post Q4 Earnings?
We expect Citigroup Inc. (C - Free Report) to beat earnings expectations when it reports its fourth-quarter and 2016 results tomorrow, before the opening bell.
Driven by a decline in operating expenses, Citigroup had delivered a positive earnings surprise of nearly 8% in the last quarter. Also, the company recorded higher fixed income market revenues and investment banking revenues. However, a rise in cost of credit was a headwind.
This earnings beat translated in to improved price movement for the company. Gradually improving operating environment also supported the price performance. For the three-month period ended Dec 31, 2016, Citigroup’s shares increased nearly 8.8%.
Will the rally in stock price continue post fourth-quarter earnings release? It majorly depends on whether the firm is able to maintain its trend of beating earnings over the last four quarters.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. Price and EPS Surprise | Citigroup Inc. Quote
Why a Likely Positive Surprise?
Our quantitative model predicts that an earnings beat is quite likely. Here is why:
Chances of Citigroup beating the Zacks Consensus Estimate in the fourth quarter are high. This is because the stock has both a positive Earnings ESP and a Zacks Rank #3 (Hold) or better for this to happen.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks ESP: The Earnings ESP for Citigroup is 1.79%. This is because the Most Accurate Estimate of $1.14 is above the Zacks Consensus Estimate of $1.12.
Zacks Rank: Citi’s Zacks Rank #2 (Buy) further increases the predictive power of ESP.
Moreover, the earnings estimate for the upcoming release indicates a year-over-year rise of nearly 5.8%. In addition, the Zacks Consensus Estimate for Citigroup for the fourth quarter has been witnessing upward revisions, for the last 30 days.
Factors to Influence Q4 Results
Improvement in Trading Revenues: In Dec 2016, Citigroup’s Chief Financial Officer – John Gerspach – signaled about improved trading income in the quarter to be reported, at a conference in New York. The company expects a 20% rise in trading revenues on a year-over-year basis, driven by strength in trading activities.
Consumer Banking Revenues to Exhibit Growth: In consumer banking, management anticipates generating year-over-year revenue growth in constant dollars in North America. However, seasonal decline in mortgages is expected in the fourth quarter.
International consumer revenues are estimated to grow modestly, resulting in year-over-year improvement in both Asia and Mexico, as well as positive operating leverage in the regions.
Expense to Trend Lower: On the cost front, Citigroup foresees core expenses to be down marginally in the fourth quarter, on a sequential basis, reflecting the absence of certain non-recurring costs, reduced compensation expense and other efficiency savings. These are likely to be partially offset by seasonally higher marketing expenses and ongoing investments.
Margin Pressure to Ease: Management projects net interest margin to be stable compared with the third-quarter level of 286 basis points. While the Fed increased the rates in mid December and simultaneously Citigroup raised its prime rate to 3.75%, the favorable impact of the same will not be recorded in the fourth quarter.
Investment Banking Fees to Decline: Regarding investment banking, management predicts revenues to be broadly stable sequentially, on assumptions of market with favorable conditions. Notably, per the Thomson Reuters data, industry-wide investment banking fees are expected to be down. Likewise, Citigroup is also likely to face a challenging quarter.
Credit Costs to Rise: Management anticipates cost of credit in Citicorp to be higher sequentially, on the assumption that credit costs in Institutional Clients Group normalize compared to the benefit in third quarter. Further, net credit losses are projected to be higher as the Costco portfolio begins to incur losses and the impact of volume growth.
Stocks that Warrant a Look
Here are some stocks worth considering, as they have the right combination of elements to post an earnings beat this quarter.
Commerce Bancshares, Inc. (CBSH - Free Report) is scheduled to report results on Jan 18. It has an Earnings ESP of +1.47% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
M&T Bank Corporation (MTB - Free Report) is slated to release results on Jan 19. It has an Earnings ESP of +0.50% and carries a Zacks Rank #3.
KeyCorp (KEY - Free Report) has an Earnings ESP of +6.90% and carries a Zacks Rank #2. The company is slated to release results on Jan 19.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest tickers for the entirety of 2017?
Who wouldn't? These 10 are painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. They are our primary picks to buy and hold. Be among the very first to see them >>