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Should You Buy Citigroup (C) Stock Ahead of Earnings?

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Shares of Citigroup (C - Free Report) surged as much as 2% in early morning trading Thursday, just one day ahead of the highly-anticipated release of the company’s latest quarterly earnings report.

With interest rate uncertainty looming above the entire finance sector, investors will want to pay close attention to the latest results from a banking titan like Citigroup. Here’s what to expect from the firm’s first quarter 2018 report tomorrow.

Industry Trends

The Zacks-defined “Banks – Major Regional” industry has returned nearly 19% over the past year, outpacing the S&P 500’s 14.3% gain. However, the group has slumped about 8.3% over the past month as new headwinds challenge its strong run.

Specifically, yields on the benchmark 10-year Treasury bond have moved sideways recently, marking a change to the uptrend in treasury yields that had been in place since September. The Fed is still poised to tighten its monetary policy, but there is now a question about whether the central bank will announce four rate hikes, or more, this year.

Investors in this space should continue to monitor this interest rate uncertainty as they clamor for the earnings growth catalyst that is a higher interest rate.

Latest Outlook and Valuation

Based on our latest Zacks Consensus Estimates, we expect Citigroup to report earnings of $1.61 per share and total revenue of $18.90 billion. These results would represent year-over-year growth rates of 18.4% and 4.3%, respectively.

Heading into its report date, Citigroup is trading with a Forward P/E of 10.5, which represents a discount to its industry’s average of 11.8. Within the past year, the stock has traded as high as 14.3x forward 12-month earnings and as low as 10.2x. Its median earnings multiple over that time is 11.9x. Investors might conclude that Citigroup shares are slightly undervalued right now.

Earnings ESP Whispers

Investors will also want to anticipate the likelihood that Citigroup surprises investors with better-than-anticipated earnings results. For this, we turn to our Earnings ESP figure.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find earnings surprises by focusing on the most recent analyst estimates. This is done because, generally speaking, when an analyst posts an estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Citigroup is currently holding a Zacks Rank #3 (Hold) and an Earnings ESP of +0.5%. This is because the company’s Most Accurate Estimate for earnings sits at $1.62 per share, meaning that the most recent analyst estimates have been higher than the consensus. Based on this, we can conclude that our model is suggesting a beat is likely.

Surprise History

Investors also want to consider Citigroup’s history of earnings surprises and the effect that these beats have had on share prices. The company has met or surpassed earnings estimates in each of the trailing 12 quarters, but a positive bottom-live surprise has not always translated into upward momentum for its stock.

We judge the price effect of these earnings beats by comparing the closing price of the stock two days before the report and two days after the report. Over the span of Citigroup’s recent streak, the stock has moved higher in just six quarters during these periods.

Want more market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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