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Is It Time to Buy Citigroup (C) Shares?

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Citigroup (C - Free Report) is in the midst of a massive restructuring and turnaround of its business. It is in the process of exiting the international consumer business and cancelling certain other fees that will continue to have a negative impact on its results. It also intends to focus more strongly on institutional clients (ICG business), which, like JPMorgan (JPM - Free Report) , makes investment banking a core focus area.

The company has topped analyst earnings estimates in each of the four preceding quarters, so its track record appears good going into the second quarter 2022 announcement.

Citigroup’s Net Interest Income has increased steadily over the last five quarters, although growth from quarter to quarter has been limited in the 0-4% range. Analysts are currently looking for 3.7% growth in the to-be-reported quarter. It’s also worth noting that the printed numbers have been better than analyst estimates in four of the last five quarters (they fell short in the March quarter of 2021).

Interest earning assets, while showing a rising trend through this period, dropped in the last quarter, missing analyst estimates. The dip in card and retail loans, as well as discontinued operations, were the likely culprits. Analysts are forecasting a 1.3% increase in the quarter to be reported.

Commissions and fees surged in the December quarter before slumping in March. But while in the first three quarters of 2021 they beat analyst estimates by strong double-digit rates, the surprise percentage dropped in the December quarter, as analysts raised their expectations.

From there, the March quarter was a big disappointment, with results missing by over 13%. “…[T]he current macro backdrop impacted Investment Banking as we saw a contraction in capital market activity,” CEO Jane Fraser explained. Analysts however, remain optimistic. Their current quarter forecast is set at above 13% growth.

Principal transactions continued to shrink and lagged analyst expectations right through 2021. But in the last quarter, there was a surge that analysts expect will normalize this quarter.

Asset management and administration fees, accounting for a much smaller share of revenue, also continues to disappoint. In the to-be-reported quarter, analysts expect an 8% increase.

Both capital ratio and leverage ratios appear decent. The efficiency ratio is on the high side, which is expected given the legal overhang.

From the above, it appears that Citigroup is executing well on its turnaround strategy. Of course, costs (including legal/regulatory charges and technology upgrades) will continue to weigh on the bottom line. Additionally, higher interest rates notwithstanding, the outlook for banks is mixed because of recession-related concerns about shrinking personal consumption. Therefore, despite the cheap valuation, it is better to take a wait-and-see approach to this stock.

Citigroup shares carry a Zacks Rank #3 (Hold).

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