Citi Outperforms Other Big Banks: What's Driving the Stock?

Shares of Citigroup C have appreciated 18.4% year to date compared with the Zacks Major Regional Banks industry’s growth of approximately 6.5%. Strong prospects, driven by steady revenue growth and inorganic expansion strategy seem to be the primary reasons for this impressive stock performance.

Despite facing a similar operating backdrop, particularly the trade war-related uncertainty and other geopolitical concerns, Citigroup has been able to significantly outperform its peers such as Bank of America BAC and JPMorgan Chase JPM that have gained 7.4% and 8.3%, respectively. Another Wall Street biggie, Wells Fargo & Company WFC has lost 2.9% in the same time period, marred by its legal involvements.

Year-to-date Price Performance

Wondering what is driving the stock? Let’s have a look at Citigroup’s key metrics:

The company’s net interest revenues thrived in the higher rate environment and an improved lending scenario. We expect the bank to record growth in revenues in the near term as well, on the back of a decent U.S. economy and focus on core operations with strategic moves.

The New York-based lender has been successful in controlling costs over the past few years with the help of branch closures and winding down of legacy assets. Further, the bank seeks to cut costs through layoffs in fixed-income and stock-trading divisions through 2019.

Citigroup continues to execute growth strategies, such as making entry into the booming digital consumer payments industry and expanding global market presence, thereby aiming to diversify revenue sources. This is also reflective of management’s focus on improving the company’s performance.

Deeper research into Citigroup’s fundamentals will help better judge its potential:

Dividend Yield

Citigroup has been deploying capital in terms of dividend payments to enhance shareholders’ value. Notably, in July, it announced a 13.3% increase in quarterly common stock dividend.

Also, the company has a current dividend yield of 3.25%, which is near the industry’s yield of 3.29%. As compared with the industry’s average, shareholders of Citigroup gain decent.

Earnings Estimate Revisions & Growth Projections

The Zacks Consensus Estimate for 2019 earnings for Citigroup has climbed nearly 1% over the past 60 days. Additionally, its current-year earnings are projected to jump 14.9% year over year compared with 5.1% rise expected for the industry.

Hence, Citigroup reflects better earnings growth prospects.

Stock Looks Undervalued

Citigroup seems undervalued when compared with the broader industry. Its current price-to-earnings (F1) and price-book ratios are lower than the respective industry averages.

The stock currently has a Value Score of B. The Value Score condenses all valuation metrics into one actionable score that helps investors steer clear of “value traps” and identify stocks that are truly trading at a discount.

What Does the Future Hold for Citigroup?

Citigroup’s net interest margin, which is considered to be key indicator of banks’ profitability, might fall due to decline in interest rates. Markets are expecting the Fed to announce further rate cuts this year and the next year as well.

Also, global economic slowdown and trade war, have been hurting business sentiments across industries. This is likely to have an adverse impact on loan demand and might hamper the bank’s net interest income.

Nonetheless, the bank continues to undertake restructuring and streamlining initiatives against any unforeseen downturn. Also, Citigroup is likely to continue reaping benefits from the healthy domestic economy.

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JPMorgan Chase & Co. (JPM): Free Stock Analysis Report

Bank of America Corporation (BAC): Free Stock Analysis Report

Citigroup Inc. (C): Free Stock Analysis Report

Wells Fargo & Company (WFC): 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 Nasdaq, Inc.

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