Depending on who you ask, bank stocks are poised to be this year’s top out-performers compared to other sectors. Factors such as less accommodative monetary policy and the recent rise in U.S. treasury yields bode well for commercial bank stocks including Citigroup (C).
While Citigroup has done a solid job over the past few quarters managing the low-rate environment, it still has tons of ground to make up when compared to its peers. But is now a good time to bet on outperformance? We will find out when the bank reports first quarter fiscal 2022 earnings results before the opening bell Thursday. Citigroup has been pressured by regulators to resolve issues related to internal controls regarding compliance, data, and risk management, including being levied a $400 million fine and a cease-and-desist order.
But as the fourth-largest bank in the U.S., there is still an attractive business here. The bank traded well below its 52-week high of $80, and over the last five quarters, Citi has surpassed consensus EPS estimates all five times. What’s more, the fact that the Federal Reserve has begun to raise interest rates and is likely to do so again four more times this year. And in terms of value, Citi currently trades at roughly 80% of its tangible book value. That combined with an attractive dividend yield of 3.1%, along with a potential boost in the share buyback makes Citi a stock to own in 2022.
For the three months that ended March, analysts expect the New York-based bank to earn $1.65 per share on revenue of $18.29 billion. This compares to the year-ago quarter when earning were $3.62 per share on revenue of $19.33 billion. For the full year, ending in December, earnings are projected to be $6.70 per share, down from $10.14 per share a year ago, while full-year revenue of $72.06 billion would rise 0.2% year over year.
While concerned remain about global growth, which could impact Citigroup given the bank’s global reach, the management has reduced the bank's high-risk and illiquid assets. The company is strategically shifting its business and exiting consumer banking operations in certain regions. The management is realigning Citi’s structure to focus on areas such as Personal Banking, Wealth Management, and Legacy Franchises segments
These moves have not only revived revenue and the bank’s return on equity, they have also simplified the business model. And as the economy starts to fully reopen, Citigroup’s net interest income will trend higher as it benefits from sustained growth in loans and deposits. In the fourth quarter, Citigroup beat on both the top and bottom lines and announced plans to divest after all four of its Southeast Asia consumer business units to United Overseas Bank.
Q4 adjusted EPS of $1.99 rose 4% year over year, while revenue of $17.02 billion surpassed estimates by $240 million. As have been the case in the previous quarter, Q4 results were driven by strong performances in investment banking, its private bank, and securities services. Institutional Clients Group revenue of $9.87 billion fell rose 4% year over year. "We had a decent end to 2021 driving net income for the year up to $22 billion in what was a far better credit environment than the previous year," said CEO Jane Fraser.
These improved metrics, combined with the bank’s efforts to increase operating efficiency via strategic cost reductions, are paying dividends. On Thursday the market will want to see whether these trends can continue.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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