A month has gone by since the last earnings report for Citigroup (C Quick QuoteC - Free Report) . Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Citigroup due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Citigroup Q4 Earnings Beat Estimates, Reserve Releases Recorded

Citigroup delivered an earnings surprise of 53.3% in fourth-quarter 2020 on reserve releases. Income from continuing operations per share of $2.07 for the quarter handily outpaced the Zacks Consensus Estimate of $1.35. Results were, however, down 3.7% from the prior-year quarter.

Citigroup recorded higher market revenues during the reported quarter. Remarkably, the equity market revenues impressed on favorable market conditions and strong client volumes, driven by stellar derivatives, cash equities and prime finance performance. Further, fixed income revenues were on an upswing, reflecting strength in products and commodities, partly offset by lower revenues in rates and currencies.

At the same time, investment banking revenues decreased on disappointing debt underwriting business and reduced advisory revenues, partly muted by higher equity underwriting. Corporate lending was also on the downside.

Though reserve releases supported results, rise in expenses was a major drag.

Net income was $4.6 billion compared with the $5 billion recorded in the prior-year quarter.

For full-year 2020, net income came in at $11.4 billion compared with the $19.4 billion recorded in 2019.

Revenues Decline, Expenses Flare Up

For full-year 2020, the company reported revenues of $74.3 billion, in line with the prior year. The figure, however, outpaced the Zacks Consensus Estimate of $70.4 billion.

Revenues were down 10% year over year to $16.5 billion during the December-end quarter. The reported figure also lagged the Zacks Consensus Estimate of $16.6 billion. Lower revenues from ICG and GCB, along with negative revenues from Corporate/Other, resulted in this decline.

In the ICG segment, revenues came in at $9.3 billion during the October-December quarter, down 1% year over year. Lower investment banking and corporate lending revenues were partly offset by higher fixed income market and equity market revenues.

GCB revenues decreased 14% year over year to $7.3 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 negative revenues came in at $85 million compared with revenues of $542 million witnessed in the prior-year quarter. This downside stemmed from the wind-down of legacy assets, impact of low rates and absence of “episodic” gains.

Operating expenses at Citigroup flared up 2% year on year to $10.7 billion. Continued investments in the franchise transformation, including investments on infrastructure, risk management and controls, along with higher repositioning costs resulted in this upsurge. These were partly negated by efficiency savings and reduced discretionary spending.

Stable Balance Sheet

At the end of the fourth quarter, Citigroup’s end of period assets was $2.26 trillion, up 1% sequentially. Deposits were up 1% sequentially to $1.28 trillion. The company’s loans inched up 1% sequentially to $676 billion.

Credit Quality: A Mixed Bag

Citigroup’s costs of credit for the December-end quarter were negative $46 million compared with the $2.2 billion recorded in the year-earlier quarter. Markedly, release of allowance for credit loss (ACL) reserves in the ICG segment, aided by an improved outlook for global GDP and lesser downgrades in the portfolio, along with lower net credit losses in GCB, mainly led to this substantial decline.

Cost of credit includes reduced net credit losses of $1.5 billion and a credit reserve release of $1.5 billion, and other benefits of $22 million.

Total non-accrual assets jumped 40% year over year to $5.7 billion. The company reported a rise of 18% in consumer non-accrual loans to $2.1 billion. Also, corporate non-accrual loans of $3.5 billion jumped 61% from the year-earlier period.

Citigroup’s total allowance for loan losses was $25 billion at the end of the reported quarter, or 3.73% of total loans, compared with the $12.8 billion, or 1.84%, recorded in the year-ago period.

Solid Capital Position

At the end of the October-December period, Citigroup’s Common Equity Tier 1 Capital ratio was 11.8%, down from the prior-year quarter’s 11.81%. The company’s supplementary leverage ratio for the quarter came in at 7%, up from the year-earlier quarter’s 6.21%.

As of Dec 31, 2020, book value per share was $86.59, up 4% year over year, and tangible book value per share was $73.83, up 5% from the comparable period last year.

Capital Deployment

During 2020, Citigroup repurchased common stock worth $2.9 billion. The bank paid around $4.3 billion to shareholders as common stock dividends.

Outlook

Credit loss rates reduced in Q4, given the high levels of liquidity in the United States, reduced spending and the benefits of relief program. However, in Asia, credit loss rates increased, mainly driven by those accounts that exited relief programs. The year-over-year rise in delinquencies outside the United States is concentrated in accounts rolling off relief programs and reflects more modest levels of stimulus in these regions relative to the United States. Given these trends, management continues to expect peak losses to occur in Asia and Mexico during the first half of 2021 and will begin to recover thereafter.

In the United States, management expects losses to begin to rise in 2021, given the current delinquency trend and the expected impact of recent stimulus, peak loss rates might be pushed out to the first half of 2022.

On the top line, post an extraordinary market performance in 2020, management would expect some degree of normalization in 2021. Notably, revenues are likely to be down in the mid- to high-single-digit range, largely driven by market. The outlook assumes industry wallets more similar to 2019 levels. For net interest revenue specifically, management assumes continued stabilization in the first half of the year with an improvement in the second half to base case, which assumes loan growth by this point in the recovery.

On a full-year basis, the decline in net interest revenues is projected between $1 billion to $2 billion versus 2020. On the expense side, management expects full-year expenses to flare up in the range of 2% to 3%, mostly driven by investments related to transformation. Cost of credit is likely to be significantly lower than 2020. Management expects a tax rate of around 21% for 2021.

Overall, operating margin pressure is expected this year, but given lower credit costs, some significant improvement in profitability relative to 2020 is anticipated.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review.

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 D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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 #3 (Hold). We expect an in-line return from the stock in the next few months.