Is Citigroup Headed in the Right Direction?

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With shares of Citigroup (NYSE:C) trading at around $47.26, is C an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Citigroup is one of the largest banks in the world with over 200 million customers. Operations include consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management.

The government has been one of Citigroup’s best friends over the past several years, but that’s old news. Instead of holding a grudge, it’s important to look at the current situation. At the moment, Citigroup is focused on high-margin loan growth and increasing capital levels.

Citigroup might have failed the stress test last year, but that wasn’t the case this year. This year, the FED approved Citigroup’s $1.2 billion in share repurchases through 2014. Citigroup didn’t make a request for a change in dividend yield, which might seem like a negative to some investors, but Citigroup is acting prudently. Instead of giving into pressure to please others right now, CEO Michael Corbat has chosen to plan for long-term success.

Citigroup has also been divesting where necessary. For example, it has put its Brazilian consumer finance division up for sale, which should save $761 million and lead to improved profitability.

Citigroup is often mentioned in the same breath as JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corporation (NYSE:BAC). The chart below will compare some important fundamentals. Prior to viewing these fundamentals, it should be noted that Citigroup has a market cap of $143.61 billion, JPMorgan has a market cap of $190.25 billion, and Bank of America has a market cap of $136.01 billion.

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Let’s take a look at some important numbers prior to forming an opinion on this stock.

E = Equity to Debt Ratio Is Normal  

The debt-to-equity ratio for Citigroup is close to the industry average of 2.10.

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T = Technicals on the Stock Chart Are Strong    

Citigroup has outperformed JPMorgan and Bank of America year-to-date. However, Citigroup only yields 0.10 whereas Bank of America yields 0.30 percent, and JPMorgan yields 2.40 percent.

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At $47.26, Citigroup is trading above all its averages.

50-Day   SMA

43.10

100-Day   SMA

40.10

200-Day   SMA

34.76

 

E = Earnings Have Been Inconsistent           

Earnings have been inconsistent, but they’re still much more impressive than during the financial crisis years. Revenue had been improving through 2010, but that trend has reversed.

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When we look at the last quarter on a year-over-year basis, we see a slight decline in revenue, but a moderate improvement in earnings.

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Now let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Might Support the Industry

Trends currently support the industry thanks to improvements in loans, real estate, and unemployment. Big banks are also doing their best to deal with legal and regulatory problems so they can earn a fresh start. The one major risk is austerity, which would have the potential to lead to a deflationary environment.

Conclusion

Citigroup is making a concentrated effort to reduce non-core assets. This will lead to reduced risk and an increase in capital. However, this could also hamper growth potential.

Overall, the positives outweigh the negatives, but due to the recent deposit levy debacle in Cyprus, there is risk for contagion throughout Europe. We still don’t know how it will play out. That being the case, Citigroup is a WAIT AND SEE.

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