Balanced View on Citigroup - Analyst Blog

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On Nov 29, 2013, we reiterated our long-term recommendation on Citigroup Inc. ( C ) at Neutral based on the company's global footprint and attractive core business along with its expansion in the emerging markets. Yet, a low interest-rate environment and regulatory issues along with litigation risks remain concerns. Further, considering the tepid economic recovery, we believe that robust top-line expansion will remain elusive in the near term.

Why Neutral?

Citigroup's long-term strategy to shrink its non-core assets and increase its fee-based business mix would improve the valuation over time. The run down of Citi Holdings, its legacy problem assets portfolio, is on track. Citi Holdings' assets decreased 29% from the prior-year quarter to $122 billion and represented only 6% of the company's total assets at the end of third-quarter 2013.

Despite the overall sluggish economic environment, Citigroup's total deposits surged 1.0% year over year in third-quarter 2013. Therefore, deposit balances are poised to grow amid an improving economy.

In a tepid economic recovery, bolstering revenue has become a challenge. Therefore, Citigroup continues to focus on efficiency improvement measures and expense management efforts. Notably, management aims to continue to pursue ongoing reengineering opportunities and expects to achieve $900 million of expense savings in 2013, related to repositioning actions, with full year expense savings of $1.2 billion beginning in 2014.

However, following the volatile 2012 results, Citigroup began 2013 on a positive note and continued its impressive results into the first two quarters, but disappointed in the third. Citigroup reported disappointing third-quarter 2013 earnings, with a negative surprise of about 3.85%. Earnings per share came in at $1.02 for the quarter, lagging the Zacks Consensus Estimate by 4 cents. Moreover, earnings were down 4% from the prior-year period on lower revenues.

Over the last 60 days, the Zacks Consensus Estimate for 2013 reduced 2.3% to $4.71 per share. The Zacks Consensus Estimate for 2014 has also decreased by 2.3% to $5.41 per share over the same time frame. With the Zacks Consensus Estimates for both 2013 and 2014 going down, Citigroup now has a Zacks Rank #3 (Hold).

Other Major Banks to Consider

Some better-ranked stocks in the banking sector include Comerica Incorporated ( CMA ), Fifth Third Bancorp ( FITB ) and KeyCorp. ( KEY ). All these 3 companies carry a Zacks Rank #2 (Buy).



CITIGROUP INC (C): Free Stock Analysis Report

COMERICA INC (CMA): Free Stock Analysis Report

FIFTH THIRD BK (FITB): Free Stock Analysis Report

KEYCORP NEW (KEY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: C , CMA , FITB , KEY

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