Citigroup Drives Growth on Cost Controls, Legal Issues Loom - Analyst Blog


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On Aug 27, 2014, we issued an updated research report on Citigroup Inc. ( C ). The company exhibits decent fundamentals amid several ongoing issues.

We remain optimistic owing to Citigroup's efforts to contain costs and drive operational efficiency. Notably, Citigroup expects to achieve around $2.2 billion of annual savings from the initiatives it has in place. Notably, adjusted expenses were down 3% year over year in second-quarter 2014, driven by efficiency savings.

Further, the company is continuing to offload distressed assets from its Citi Holdings unit to boost earnings and focus more on core operations. Notably, Citi Holdings' assets declined 15% from the prior-year quarter to $111 billion and comprised only 6% of the company's total assets at the end of second-quarter 2014.

Citigroup exhibited a strong capital position in the 2014 stress test. Though the 2014 capital plan rejection by the Federal Reserve raised concerns, it should be noted that the rejection was based on certain "qualitative reasons." As the company is working on the glitches, we believe it has enough potential to get the Fed's nod on its 2015 capital plan.

Citigroup's second-quarter 2014 adjusted earnings per share of $1.24 outpaced the Zacks Consensus Estimate by 14.81%. Yet it came a penny below the prior-year earnings. Notably, Citigroup struck a deal with the U.S. Department of Justice (DOJ), several state attorneys general (State AGs) and the Federal Deposit Insurance Corporation (the FDIC) worth $7 billion, which impacted results by $3.8 billion ($3.7 billion after-tax).

Despite the company's strengths we remain cautious, owing to several issues faced by Citigroup. These include absence of steady growth in revenues, escalating litigation issues and the prevailing stringent regulatory landscape.

Analysts' bearish stance on the stock was reflected in the movement of the Zacks Consensus Estimate over the past 60 days. For 2014, the Zacks Consensus Estimate declined 24.2% to $3.54 per share while for 2015 it fell around 1% to $5.38 per share.

Citigroup currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked finance stocks include Bank of the Ozarks, Inc. ( OZRK ), Farmers Capital Bank Corp. ( FFKT ) and First Community Bancshares, Inc. ( FCBC ). All three stocks carry a Zacks Rank #1 (Strong Buy).

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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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: C , OZRK , FCBC , FFKT

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