A month has gone by since the last earnings report for Citigroup (C Quick QuoteC - Free Report) . Shares have added about 6.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Citigroup 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's Q3 Earnings Top Estimates, Revenues Up Y/Y

Citigroup delivered a positive earnings surprise of 1% in third-quarter 2019, backed by improved investment banking performance. Adjusted earnings per share of $1.98 outpaced the Zacks Consensus Estimate of $1.96. Also, earnings climbed 20% year over year.

Including one-time gain, net income was $4.9 billion or $2.07 per share compared with $4.6 billion or $1.73 per share recorded in the prior-year quarter.

Citigroup displayed revenue strength, riding on consumer banking during the reported quarter. Further, loan and deposit growth was a positive. Also, investment banking revenues jumped on strong advisory business and higher debt underwriting, partly offset by lower equity underwriting fees.

However, lower equity market revenues amid a challenging trading environment reflect reduced volumes and client activity levels.

Citigroup’s costs of credit for the September-ended quarter were up 6% year over year to $2.09 billion. This upswing largely underlines elevated net credit losses of $1.9 billion and a credit reserve build of $158 million, and provision for benefits and claims of $17 million.

Revenues Increase, Expenses Escalate

Revenues were up 1% year over year to $18.6 billion in the third quarter. The reported figure matched with the Zacks Consensus Estimate. Higher revenues from Institutional Clients Group (“ICG”) mainly led to the upside.

Global Consumer Banking (“GCB”) revenues increased marginally year over year to $8.7 billion. Higher revenues in North and Asia GCB led to this upsurge. Notably, rise in card revenues was partially offset by lower Retail Banking revenues.

In the ICG segment, revenues came in at $9.5 billion in the quarter, up 3% year over year. Investment banking and treasury & trade solutions supported the upsurge, whereas corporate lending, equity market revenues and fixed income market revenues fell.

Corporate/Other revenues came in at $402 million, down 18% from the prior-year quarter. This fall stemmed from the winding down of legacy assets.

Operating expenses at Citigroup rose 1% year over year to $10.5 billion. Volume-driven growth and continued investments were partially offset by efficiency savings and the winding down of legacy assets.

Strong Balance Sheet

At the end of the quarter, Citigroup’s end of period assets were $2.02 trillion, up 1% sequentially. The company’s loans were almost flat sequentially at $692 billion. Deposits were up 4% from the prior quarter to $1.09 trillion.

Credit Quality Improves

Total non-accrual assets decreased 6% year over year to $3.8 billion. The company’s consumer non-accrual loans declined 8% to $2.2 billion. Furthermore, corporate non-accrual loans of $1.5 billion slipped 1%.

Citigroup’s total allowance for loan losses was $12.5 billion at the end of the quarter, or 1.82% of total loans compared with $12.3 billion or 1.84% recorded a year ago.

Solid Capital Position

At the end of the July-September quarter, Citigroup’s Common Equity Tier 1 Capital ratio was 11.6%, down from the prior-year quarter’s 11.7%. The company’s supplementary leverage ratio for the quarter came in at 6.3%, down from 6.5%.

As of Sep 30, 2019, book value per share was $81.02, up 11% year over year, and tangible book value per share was $69.03, up 12%.

Capital Deployment

During the third quarter, the company bought back about 76 million of common stock and returned around $6.3 billion to common shareholders as common stock repurchases and dividends.

Outlook

In ICG, markets and investment banking revenues will likely reflect the overall environment, though a challenging trading environment is not expected as witnessed in fourth-quarter 2018. In accrual businesses, revenues are likely to benefit from continued strong client engagement and higher volumes.

However, these revenues are expected to be partly offset by spread compression given the lower interest-rate environment. In consumer, continued year-over-year revenue growth is expected in all regions, driven by continued loan and deposit growth, partially offset by the impact of lower deposit spreads.

In 2019, management expects to record modest year-over-year revenue growth, attributed to continued growth in net interest revenue (2-3%) and more stable trends in non-interest revenues.

For the fourth quarter of 2019, management projects a pre-tax loss of around $100-$150 million in Corporate Other segment, with continued investment in infrastructure and controls.

For U.S. Branded Cards, NCL rate is anticipated in the range of 300 basis points to 325 basis points for 2019. NCL rate for Retail Services are expected in the range of 500 basis points to 525 basis points.

In addition, on the expense side, management noted that efficiency saving significantly outpaced incremental investments in the first half of 2019, realizing a net benefit to expenses of roughly $300 million. This amount is likely to increase to around $500-$600 million of net incremental savings in 2019, along with an additional $500- $600 million of net incremental benefits in 2020. These net savings should offset volume-driven expenses on ongoing investments in the business. Moreover, positive operating leverage the bank as a whole and for consumer and institutional businesses is anticipated in 2019.

For total Citigroup, expenses are expected to decline sequentially, cost of credit to continue to grow modestly, and solid year-over-year pre-tax earnings growth is projected.

Management targets efficiency ratio in the low 50% range. In addition, the company’s primary goal is to sustainably improve the return on shareholders' equity from the roughly 11% achieved in 2018 to about 12% in the current year, and more than 13.5% in 2020.

Management expects a tax rate of around 22%, excluding any discrete tax items.

During the second quarter, on approval of Capital Plan 2019 from the Federal Reserve, Citigroup is likely to meet the goal set at Investor Day to return at least $60 billion in capital over 3 CCAR cycles.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

Currently, Citigroup has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Citigroup has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.