In many respects the market appears undecided when it comes to assessing bank stocks, particularly in a low-interest rate environment that has made it more challenging for banks to make money on loans. But it’s tough to not like Citigroup (C), which is set to report fourth quarter fiscal 2019 earnings results before the opening bell on Tuesday.
While investors have grown concerned about a global growth slowdown, which could impact Citigroup given the bank’s global reach, its management has worked to reduce its high-risk and illiquid assets. These moves have revived Citigroup’s revenue and its return on tangible equity. What’s more, Citigroup’s net interest income (operating income) will continue to trend higher as it benefits from sustained growth in loans and deposits.
To be sure, the bank is still dealing with several lingering concerns, including uncertainties related to the U.S.-China trade war, and Brexit, which could pressure its trading activities (that would be the case for its peers as well). This should be offset by it efforts to increase operating efficiency via strategic cost reductions. As such, Citigroup stand to realize not only strong free cash flows, but also long-term double-digit growth in earnings per share.
For the three months that ended December, analysts expect the New York-based bank to earn $1.84 per share on revenue of $17.89 billion. This compares to the year-ago quarter when earnings came to $1.61 per share on revenue of $17.12 billion. For the full year, ended December, earnings are projected to rise 15.7% year over year to $7.70 per share, while full-year revenue of $73.8 billion would rise 1.3% year over year.
In the third quarter, Citi beat on both the top and bottom lines, driven by the strength in its consumer banking business and Branded Cards’ 11% revenue jump. Q3 EPS of $1.97 beat consensus by 2 cents, while revenue of $18.57 billion topped estimates by about $30 million. Notably, global consumer banking revenue rose 2% sequentially to $8.66 billion. And the fact that it was flat on a year-over-year basis was a win, particular amid concerns about global economic growth.
There is still weakness, however, in the Institutional clients group revenue which fell 2% sequentially to $9.51 billion. This was offset by the fact that the bank is seeing better credit growth and an increase in deposits, which should support its net interest margin, even in the low-rate environment. On Tuesday investors will want to see the extent Citigroup can improve on these metrics, namely consumer banking revenue growth on the back of Branded Cards’ demand.
Analysts will focus on the bank’s ability to grow its deposits as a way to gauge the effectiveness of its digital efforts. And to the extent the management can convince investors that its global exposure is a strength, not a liability, Citigroup stock should see an immediate jump as it benefits from the overall market momentum.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.