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Is Citigroup's Stock Undervalued?

Citigroup (NYSE:C) is a geographically diversified banking giant with offices in over 160 countries. Trefis has a price estimate of $82 for Citigroup’s stock which is 15% higher than its current market price. Our price estimate is reinforced by Citigroup’s earnings release for the third quarter, with the bank surpassing consensus revenue as well as earnings estimates. The earnings beat can be attributed to a 3% y-o-y growth in Institutional Client Group (ICG) revenues, partially offset by 18% y-o-y decrease in Corporate/other segment. Notably, Global Consumer Banking (GCB) revenues were at the same level as the figure a year ago.

We have detailed the key components of Citigroup’s Valuation in an interactive dashboard, along with our forecast for the full year 2019. Additionally, you can see more Trefis data for financial companies here.

The stock price estimate can be divided into 4 factors: Stock Price = (Total revenue x Net income margin / No. of shares outstanding) x P/E Ratio

#1 Estimating Citigroup’s Revenues

  • In 2019, we expect Total Revenues to be $73.9 billion, 1% more than 2018.
  • Global Consumer Banking (GCB) is expected to have a 5% growth in revenues driven by growth in Net Interest Income across both Consumer Banking and Citi Cards segments.
  • However, a slight decline in Institutional Client Group (ICG) revenues coupled with 12% drop in Corporate/other segment would partially offset top line gains.

Our interactive dashboard for Citigroup details what is driving changes in revenues of Citigroup’s individual revenue streams along with our forecast for the next three years?

#2 Deriving Citigroup’s Net Income Figure

  • Growth in revenues would more than offset the increase in expenses, which would lead to an improvement of 2% y-o-y in the EBT figure.
  • This coupled with lower expected tax rate in 2019 would enable Citigroup to post a better net income margin of 23.6%, up from 22.9% in 2018.
  • Citigroup is expected to have a Net Income of $17.4 billion in 2019 which is 5% more than previous year.

#3 Deriving Citigroup’s EPS Figure

  • Citigroup has regularly invested in share repurchase to boost shareholder returns. Further, we expect it to repurchase $17 billion worth of shares for the full year 2019.
  • This would enable it to report an EPS figure of $7.74 in 2019.

#4 Estimating Citigroup’s Share Price using P/E Multiple

  • We expect Citigroup to achieve earnings of $7.74, which coupled with our forward P/E multiple of 10.6x works out to a price estimate of $82
  • Details about how Citigroup’s P/E multiple compares with peers Bank of America, JPMorgan and Goldman Sachs is available in our interactive dashboard.

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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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