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Citigroup (C) Up 5.2% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Citigroup Inc. (C - Free Report) . Shares have added about 5.2% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Citigroup Beats on Q1 Earnings, Trading Revenues Climb
Citigroup delivered a positive earnings surprise of 9.68% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.36 outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10. Notably, results reflect one-time adjustments of $0.01.
Income from continuing operations was $4.12 billion, up 17% from the prior-year quarter.
The quarter witnessed rise in overall revenues, driven by higher market revenues, supported by an improved trading environment. Both rates and currencies, along with spread products, improved. Moreover, results reflected prudent expense management.
Further, Citigroup’s costs of credit for the first quarter were down 19% year over year to $1.67 billion. The decline largely reflects loan loss reserve release of $77 million. In addition, reduced provision for benefits and claims, and slight decline in net credit losses were also favorable.
Higher Market Revenues & Continued Cost Control
Revenues increased 3% year over year to $18.12 billion in first-quarter 2017. The rise reflected higher revenues in institutional clients group and global consumer banking, partially offset by decline in corporate/other revenues. The revenue figure also surpassed the Zacks Consensus Estimate of $17.81 billion.
At Institutional Clients Group (ICG), revenues came in at $9.13 billion in the quarter, up 16% year over year. Notably, revenues from total banking, and total markets & securities services climbed 14% and 18% on a year-over-year basis, respectively.
Global Consumer Banking (GCB) revenues inched up 1% year over year, mainly driven by higher revenues in North America and Asia GCB. The rise was partially offset by a decline in Latin America GCB revenues.
Corporate/Other revenues were $1.18 million, plunging 40% from the prior-year quarter. The decline mainly reflected legacy asset runoff and divestiture activity, along with reduced revenue from treasury-related hedging activity.
Operating expenses at Citigroup were slightly down year over year to $10.48 billion. However, expenses increased 1% (in constant dollars).
Strong Balance Sheet
At quarter end, Citigroup’s end of period assets was $1.82 trillion, up 1% year over year. The company’s loans grew 2% year over year at $629 billion. Deposits increased 2% year over year to $950 billion.
Credit Quality Improved
Total non-accrual assets decreased 11% year over year to $5.5 billion. The company reported a decline of 18% in consumer non-accrual loans to $3.0 billion. However, corporate non-accrual loans of $2.3 billion went up 1% from the prior-year period.
Citigroup’s total allowance for loan losses was $12.0 billion at quarter end, or 1.93% of total loans, down from $12.7 billion, or 2.07%, in the year-ago period.
Strong Capital Position
At the end of the reported quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 12.8%, increasing from 12.3% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.3%, down from 7.4% in the prior-year quarter.
As of Mar 31, 2017, book value per share was $75.86 and tangible book value per share was $65.94, up 6% and 5%, respectively, from the prior-year period.
Outlook
Management continues to expect the full-year NCL rate to be in the range of around 280 basis points in branded cards and 435 basis points in Retail Services for 2017, with some quarterly variability.
While revolving loan balance trends improved during the first quarter, cards revenues in Latin America GCB are anticipated to remain under pressure in the near term.
Citigroup continues to execute on its investment plans in the first quarter in Mexico, modernizing branches and ATMs, enhancing digital capabilities and upgrading core operating platforms. These infrastructure investments should improve operating efficiency and returns over time. Therefore, management anticipates to maintain positive operating leverage each year throughout the investment period.
According to management, personal loan balances have stabilized in recent quarters as underlying growth in certain markets have been offset by regulatory headwinds in others. These headwinds are abating and therefore, management projects modest growth in total retail loans from this new base in 2017, while continuing to improve the yield on the portfolio.
Further, management also expects to generate loan growth in cards, going forward, as the company is investing to drive higher account acquisition and usage. These initiatives, along with consistent focus on wealth management, are expected to drive sustained growth in Asia in 2017 and beyond.
In Citi Holdings, management estimates the net interest revenue to decline by $1 billion in 2017 from 2016.
In consumer, in North America, revenue growth in the second quarter is expected to continue to be mostly inorganic, driven by a full quarter of revenue contribution from the Costco portfolio which was acquired in Jun 2016. Excluding mortgage, consistent growth in the North America Retail Banking franchise is expected as well. However, this is likely to be offset by lower mortgage revenues on a year-over-year basis. Internationally, management continues to expect modest year-over-year revenue growth in constant dollars with positive operating leverage in both Asia and Mexico.
For the remaining 2017, Core Accrual revenues should continue to grow year-over-year. Assuming one additional rate hike mid-year, Core Accrual revenues is expected to rise year-over-year by about $1.5 billion in total over the next three quarters, with just under two thirds of that amount coming from higher rates and the reminder mostly reflecting higher loan volumes and mix.
In Institutional business, market revenues are expected to reflect the normal seasonal decline from the first quarter. Investment Banking revenues are likely to remain broadly stable sequentially, assuming that market conditions remain favorable, while continued growth on a year-over-year basis is expected in TTS, Securities Service and the Private Bank. In Corporate/Other, revenues and expenses should continue to decline over time as Citigroup winds down legacy assets.
Cost and credit is expected to be higher quarter on quarter, driven by the normalization of credit cost and ICG, partially offset by improvement in North America consumer. On a full-year basis, management projects efficiency ratio to be around 58%.
Management anticipates producing a return on tangible common equity of roughly 14% over time. Further, it targets at least a 10% ROTCE on the full amount of tangible common equity, which is expected to achieve as early as 2019 depending on the rate environment as well as the outcome of tax reform.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been four downward revisions for the current quarter.
At this time, Citigroup's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Citigroup (C) Up 5.2% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Citigroup Inc. (C - Free Report) . Shares have added about 5.2% in that time frame, outperforming the market.
Will the recent positive trend continue leading up to the stock’s next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Citigroup Beats on Q1 Earnings, Trading Revenues Climb
Citigroup delivered a positive earnings surprise of 9.68% in first-quarter 2017, riding on higher revenues. The company’s earnings per share of $1.36 outpaced the Zacks Consensus Estimate of $1.24. Also, earnings compared favorably with the year-ago figure of $1.10. Notably, results reflect one-time adjustments of $0.01.
Income from continuing operations was $4.12 billion, up 17% from the prior-year quarter.
The quarter witnessed rise in overall revenues, driven by higher market revenues, supported by an improved trading environment. Both rates and currencies, along with spread products, improved. Moreover, results reflected prudent expense management.
Further, Citigroup’s costs of credit for the first quarter were down 19% year over year to $1.67 billion. The decline largely reflects loan loss reserve release of $77 million. In addition, reduced provision for benefits and claims, and slight decline in net credit losses were also favorable.
Higher Market Revenues & Continued Cost Control
Revenues increased 3% year over year to $18.12 billion in first-quarter 2017. The rise reflected higher revenues in institutional clients group and global consumer banking, partially offset by decline in corporate/other revenues. The revenue figure also surpassed the Zacks Consensus Estimate of $17.81 billion.
At Institutional Clients Group (ICG), revenues came in at $9.13 billion in the quarter, up 16% year over year. Notably, revenues from total banking, and total markets & securities services climbed 14% and 18% on a year-over-year basis, respectively.
Global Consumer Banking (GCB) revenues inched up 1% year over year, mainly driven by higher revenues in North America and Asia GCB. The rise was partially offset by a decline in Latin America GCB revenues.
Corporate/Other revenues were $1.18 million, plunging 40% from the prior-year quarter. The decline mainly reflected legacy asset runoff and divestiture activity, along with reduced revenue from treasury-related hedging activity.
Operating expenses at Citigroup were slightly down year over year to $10.48 billion. However, expenses increased 1% (in constant dollars).
Strong Balance Sheet
At quarter end, Citigroup’s end of period assets was $1.82 trillion, up 1% year over year. The company’s loans grew 2% year over year at $629 billion. Deposits increased 2% year over year to $950 billion.
Credit Quality Improved
Total non-accrual assets decreased 11% year over year to $5.5 billion. The company reported a decline of 18% in consumer non-accrual loans to $3.0 billion. However, corporate non-accrual loans of $2.3 billion went up 1% from the prior-year period.
Citigroup’s total allowance for loan losses was $12.0 billion at quarter end, or 1.93% of total loans, down from $12.7 billion, or 2.07%, in the year-ago period.
Strong Capital Position
At the end of the reported quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 12.8%, increasing from 12.3% in the prior-year quarter. The company’s supplementary leverage ratio for the reported quarter was 7.3%, down from 7.4% in the prior-year quarter.
As of Mar 31, 2017, book value per share was $75.86 and tangible book value per share was $65.94, up 6% and 5%, respectively, from the prior-year period.
Outlook
Management continues to expect the full-year NCL rate to be in the range of around 280 basis points in branded cards and 435 basis points in Retail Services for 2017, with some quarterly variability.
While revolving loan balance trends improved during the first quarter, cards revenues in Latin America GCB are anticipated to remain under pressure in the near term.
Citigroup continues to execute on its investment plans in the first quarter in Mexico, modernizing branches and ATMs, enhancing digital capabilities and upgrading core operating platforms. These infrastructure investments should improve operating efficiency and returns over time. Therefore, management anticipates to maintain positive operating leverage each year throughout the investment period.
According to management, personal loan balances have stabilized in recent quarters as underlying growth in certain markets have been offset by regulatory headwinds in others. These headwinds are abating and therefore, management projects modest growth in total retail loans from this new base in 2017, while continuing to improve the yield on the portfolio.
Further, management also expects to generate loan growth in cards, going forward, as the company is investing to drive higher account acquisition and usage. These initiatives, along with consistent focus on wealth management, are expected to drive sustained growth in Asia in 2017 and beyond.
In Citi Holdings, management estimates the net interest revenue to decline by $1 billion in 2017 from 2016.
In consumer, in North America, revenue growth in the second quarter is expected to continue to be mostly inorganic, driven by a full quarter of revenue contribution from the Costco portfolio which was acquired in Jun 2016. Excluding mortgage, consistent growth in the North America Retail Banking franchise is expected as well. However, this is likely to be offset by lower mortgage revenues on a year-over-year basis. Internationally, management continues to expect modest year-over-year revenue growth in constant dollars with positive operating leverage in both Asia and Mexico.
For the remaining 2017, Core Accrual revenues should continue to grow year-over-year. Assuming one additional rate hike mid-year, Core Accrual revenues is expected to rise year-over-year by about $1.5 billion in total over the next three quarters, with just under two thirds of that amount coming from higher rates and the reminder mostly reflecting higher loan volumes and mix.
In Institutional business, market revenues are expected to reflect the normal seasonal decline from the first quarter. Investment Banking revenues are likely to remain broadly stable sequentially, assuming that market conditions remain favorable, while continued growth on a year-over-year basis is expected in TTS, Securities Service and the Private Bank. In Corporate/Other, revenues and expenses should continue to decline over time as Citigroup winds down legacy assets.
Cost and credit is expected to be higher quarter on quarter, driven by the normalization of credit cost and ICG, partially offset by improvement in North America consumer. On a full-year basis, management projects efficiency ratio to be around 58%.
Management anticipates producing a return on tangible common equity of roughly 14% over time. Further, it targets at least a 10% ROTCE on the full amount of tangible common equity, which is expected to achieve as early as 2019 depending on the rate environment as well as the outcome of tax reform.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There have been four downward revisions for the current quarter.
Citigroup Inc. Price and Consensus
Citigroup Inc. Price and Consensus | Citigroup Inc. Quote
VGM Scores
At this time, Citigroup's stock has a poor Growth Score of 'F', however its Momentum is doing a lot better with a 'C'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.
The stock is suitable solely for value based on our styles scores.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.