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Citigroup (C) Up 13.7% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for Citigroup (C - Free Report) . Shares have added about 13.7% 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.
As expected, Citigroup delivered an earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results are, however, down significantly from the prior-year quarter.
Citigroup recorded higher revenues on investment banking and market revenues during the reported quarter. Notably, equity market revenues (up 15%) were impressive on strong performance in cash equities and derivatives, partially offset by lower prime finance revenues, while fixed income revenues (up 18%) were also on an upswing, reflecting strength in spread products and commodities.
Moreover, investment banking revenues (up 13%) increased on a solid underwriting business, partly muted by lower advisory business. However, consumer banking disappointed due to the continued impact of pandemic. Moreover, elevated cost of credit and elevated expenses were major drags.
Net income was $3.2 billion compared with the $4.9 billion recorded in the prior-year quarter.
Revenues Decline, Expenses Escalate
Revenues were down 7% year over year to $17.3 billion in the third quarter. The reported figure came almost in line with the Zacks Consensus Estimate. Lower revenues from GCB were on the downside, partly offset by higher revenues from ICG. Corporate/Other recorded negative revenues.
In the ICG segment, revenues came in at $10.4 billion in the quarter, up 5% year over year. Higher investment banking, along with fixed income and equity market revenues, led to this upsurge. These were partly muted by lower corporate lending.
GCB revenues decreased 13% year over year to $7.2 billion. Lower revenues in North, Latin America and Asia GCB due to the pandemic resulted in this decline. Notably, both retail banking and card revenues witnessed declines.
Corporate/Other revenues came in at negative $224 million compared with the prior-year quarter’s $434 million. This downside stemmed from the wind-down of legacy assets and impact of low rates along with “marks on securities”.
Operating expenses at Citigroup flared up 5% year over year to $11 billion. Civil money penalty, infrastructure investments, risk management and controls, higher compensation and COVID-19 related expenses resulted in this upswing. These were partly negated by efficiency savings and reduction in marketing and other discretionary expenses.
Stable Balance Sheet
At the end of the July-September quarter, Citigroup’s end of period assets was $2.23 trillion, up slightly on a sequential basis. Deposits were up 2% sequentially to $1.26 trillion. The company’s loans decreased 3% sequentially to $667 billion.
Credit Quality: A Mixed Bag
Citigroup’s costs of credit for the September-end quarter were up 8% year over year to $2.3 billion. Remarkably, higher allowance for credit loss reserves (ACL) in the ICG segment mainly led to this upsurge. Cost of credit includes elevated net credit losses of $1.9 billion and a credit reserve build of $314 million, and other provisions of $29 million.
Total non-accrual assets jumped 40% year over year to $5.3 billion. The company reported a drop of 9% in consumer non-accrual loans to $1.7 billion. Nonetheless, corporate non-accrual loans of $3.6 billion surged 94% from the year-earlier period.
Citigroup’s total allowance for loan losses was $26.4 billion at the end of the reported quarter, or 4% of total loans, compared with the $12.5 billion, or 1.82%, recorded in the year-ago period.
Solid Capital Position
At the end of the July-September period, Citigroup’s Common Equity Tier 1 Capital ratio was 11.8%, up from the prior-year quarter’s 11.6%. The company’s supplementary leverage ratio for the quarter came in at 6.8%, up from the year-earlier quarter’s 6.3%.
As of Sep 30, 2020, book value per share was $84.48, up 4% year over year, and tangible book value per share was $71.95, up 4% from the comparable period last year.
Outlook
Looking forward to the fourth quarter, management expects continued pressure in consumer, reflecting the adverse impact of rates and lower levels of activity related to COVID-19. Also, the low-rate environment is likely to continue hurting accrual businesses in ICG. Markets and investment banking businesses are also expected to reflect broader industry trends. Overall, management expects full-year revenues to be roughly flat with the decline in net interest revenues more or less offset by non-interest revenues on a full-year basis.
On the expense side, management remains focused on protecting employees and supporting customers. Targeted investments in the franchise are being made where the best opportunities for the future are foreseen, and accelerated investments done to achieve excellence in the risk and control environment and enhance operations for a fully digital world. As a result, management expects expenses to be up around 2% on a full-year basis.
Based on macro outlook, management does not expect additional reserve builds, but given the remaining uncertainty, any material releases is also unlikely this quarter. Quarterly pre-tax loss in corporate/other segment is expected in Q4 similar to the third-quarter level.
Management expects credit losses to begin to rise next year and peak toward the end of 2021 as government stimulus and other programs roll off and unemployment remain high.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 32.65% due to these changes.
VGM Scores
At this time, Citigroup has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Citigroup has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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Citigroup (C) Up 13.7% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for Citigroup (C - Free Report) . Shares have added about 13.7% 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 Q3 Earnings Beat Estimates, Expenses Escalate
As expected, Citigroup delivered an earnings surprise of 38.6% in third-quarter 2020 on robust market revenues. Earnings per share of $1.40 for the quarter handily outpaced the Zacks Consensus Estimate of $1.01. Results are, however, down significantly from the prior-year quarter.
Citigroup recorded higher revenues on investment banking and market revenues during the reported quarter. Notably, equity market revenues (up 15%) were impressive on strong performance in cash equities and derivatives, partially offset by lower prime finance revenues, while fixed income revenues (up 18%) were also on an upswing, reflecting strength in spread products and commodities.
Moreover, investment banking revenues (up 13%) increased on a solid underwriting business, partly muted by lower advisory business. However, consumer banking disappointed due to the continued impact of pandemic. Moreover, elevated cost of credit and elevated expenses were major drags.
Net income was $3.2 billion compared with the $4.9 billion recorded in the prior-year quarter.
Revenues Decline, Expenses Escalate
Revenues were down 7% year over year to $17.3 billion in the third quarter. The reported figure came almost in line with the Zacks Consensus Estimate. Lower revenues from GCB were on the downside, partly offset by higher revenues from ICG. Corporate/Other recorded negative revenues.
In the ICG segment, revenues came in at $10.4 billion in the quarter, up 5% year over year. Higher investment banking, along with fixed income and equity market revenues, led to this upsurge. These were partly muted by lower corporate lending.
GCB revenues decreased 13% year over year to $7.2 billion. Lower revenues in North, Latin America and Asia GCB due to the pandemic resulted in this decline. Notably, both retail banking and card revenues witnessed declines.
Corporate/Other revenues came in at negative $224 million compared with the prior-year quarter’s $434 million. This downside stemmed from the wind-down of legacy assets and impact of low rates along with “marks on securities”.
Operating expenses at Citigroup flared up 5% year over year to $11 billion. Civil money penalty, infrastructure investments, risk management and controls, higher compensation and COVID-19 related expenses resulted in this upswing. These were partly negated by efficiency savings and reduction in marketing and other discretionary expenses.
Stable Balance Sheet
At the end of the July-September quarter, Citigroup’s end of period assets was $2.23 trillion, up slightly on a sequential basis. Deposits were up 2% sequentially to $1.26 trillion. The company’s loans decreased 3% sequentially to $667 billion.
Credit Quality: A Mixed Bag
Citigroup’s costs of credit for the September-end quarter were up 8% year over year to $2.3 billion. Remarkably, higher allowance for credit loss reserves (ACL) in the ICG segment mainly led to this upsurge. Cost of credit includes elevated net credit losses of $1.9 billion and a credit reserve build of $314 million, and other provisions of $29 million.
Total non-accrual assets jumped 40% year over year to $5.3 billion. The company reported a drop of 9% in consumer non-accrual loans to $1.7 billion. Nonetheless, corporate non-accrual loans of $3.6 billion surged 94% from the year-earlier period.
Citigroup’s total allowance for loan losses was $26.4 billion at the end of the reported quarter, or 4% of total loans, compared with the $12.5 billion, or 1.82%, recorded in the year-ago period.
Solid Capital Position
At the end of the July-September period, Citigroup’s Common Equity Tier 1 Capital ratio was 11.8%, up from the prior-year quarter’s 11.6%. The company’s supplementary leverage ratio for the quarter came in at 6.8%, up from the year-earlier quarter’s 6.3%.
As of Sep 30, 2020, book value per share was $84.48, up 4% year over year, and tangible book value per share was $71.95, up 4% from the comparable period last year.
Outlook
Looking forward to the fourth quarter, management expects continued pressure in consumer, reflecting the adverse impact of rates and lower levels of activity related to COVID-19. Also, the low-rate environment is likely to continue hurting accrual businesses in ICG. Markets and investment banking businesses are also expected to reflect broader industry trends. Overall, management expects full-year revenues to be roughly flat with the decline in net interest revenues more or less offset by non-interest revenues on a full-year basis.
On the expense side, management remains focused on protecting employees and supporting customers. Targeted investments in the franchise are being made where the best opportunities for the future are foreseen, and accelerated investments done to achieve excellence in the risk and control environment and enhance operations for a fully digital world. As a result, management expects expenses to be up around 2% on a full-year basis.
Based on macro outlook, management does not expect additional reserve builds, but given the remaining uncertainty, any material releases is also unlikely this quarter. Quarterly pre-tax loss in corporate/other segment is expected in Q4 similar to the third-quarter level.
Management expects credit losses to begin to rise next year and peak toward the end of 2021 as government stimulus and other programs roll off and unemployment remain high.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 32.65% due to these changes.
VGM Scores
At this time, Citigroup has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, Citigroup has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.