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Why Is Citigroup (C) Up 6.6% Since the Last Earnings Report?

A month has gone by since the last earnings report for Citigroup Inc.C . Shares have added about 6.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Citigroup Tops Q4 Earnings, Trading Revenues Surge

Citigroup delivered a positive earnings surprise of 1.8% in fourth-quarter 2016, driven by a decline in operating expenses. The company's earnings from continuing operations per share of $1.14 for the quarter outpaced the Zacks Consensus Estimate of $1.12. Also, earnings compared favorably with the year-ago figure of $1.03 per share.

Income from continuing operations was $3.59 billion, up 5% from the prior-year quarter.

Though the quarter witnessed decline in overall revenues, the company recorded higher fixed income market revenues, supported by an improved trading environment. Both rates and currencies, and spread products improved. Also, improved performance in derivatives drove higher Equity Markets revenues. Both fixed income and equity trading surged, driven by higher volatility and increased client activity subsequent to the U.S. election results.

Further, Citigroup's costs of credit for the fourth quarter were down 29% year over year to $1.79 billion. The decline largely reflects absence of considerable loan loss reserve builds tied with energy exposures in Institutional Clients Group (ICG), along with lower provision for benefits and claims, and reduced net credit losses.

For 2016, earnings from continuing operations per share came in at $4.74, in line with the Zacks Consensus Estimate. However, it compared unfavorably with the year-ago figure of $5.42 per share.

Higher Trading Revenues & Continued Cost Reduction

Adjusted revenues of Citigroup for 2016 were $69.88 billion, down 8% year over year. Also, it missed the Zacks Consensus Estimate of $70.03 billion.

Adjusted revenues of the company decreased 9% year over year to $17.01 billion in fourth-quarter 2016. The fall reflected absence of net gains on asset sales in Citi Holdings, while revenues at Citicorp improved year over year. The revenue figure came below the Zacks Consensus Estimate of $17.05 billion.

At Citicorp, adjusted revenues came in at $16.36 billion in the quarter, up 6% year over year. Revenues at ICG increased 11% year over year. Notably, revenues from fixed income markets and equity markets climbed 36% and 15%, on a year-over-year basis, respectively. However, investment banking revenues remained largely flat year over year.

Global Consumer Banking (GCB) revenues increased 2% year over year, mainly driven by revenues in North America GCB. The rise was partially offset by a decline in Latin America GCB revenues.

Corporate/Other revenues were negative $18 million, compared to $107 million in the prior-year quarter. The decline mainly indicated the absence of equity contribution tied with the company's stake in the China Guangfa Bank, which was divested in third-quarter 2016 and gains on asset sales recorded in the year-earlier quarter.

Citi Holdings' adjusted revenues of $657 million reflected a plunge of 79% year over year. The fall primarily underlined the absence of net gains from asset sales. However, the unit continued to report profitability. Notably, management stated that the results of Citi Holdings will no longer be reported separately.

Operating expenses at Citigroup were down 9% year over year to $10.12 billion. Expenses fell 6% (in constant dollars), largely due to lower expenses in Citi Holdings owing to divestitures.

Balance Sheet

At the quarter end, Citigroup's end of period assets was $1.79 trillion, up 4% year over year. The company's loans inched up 1% year over year at $624 billion. Deposits increased 2% year over year to $929 billion. Citi Holdings' assets plummeted 33% from the prior-year quarter level to $54 billion and represented just 3% of the company's total assets at the quarter end.

Mixed Credit Quality

Total non-accrual assets increased 6% year over year to $5.8 billion. The company reported a decline of 14% in consumer non-accrual loans to $3.2 billion. However, corporate non-accrual loans of $2.4 billion surged 52% from the prior-year period, mainly related to energy-related loans in the ICG.

Citigroup's total allowance for loan losses was $12.1 billion at quarter end or 1.94% of total loans, down from $12.6 billion, or 2.06%, in the prior-year period.

Strong Capital Position

At the quarter end, Citigroup's estimated Basel III Common Equity Tier 1 Capital ratio was 12.5%, increasing from 12.1% in the prior-year quarter. The company's supplementary leverage ratio for the reported quarter was 7.2%, up from 7.1% in the prior-year quarter.

As of Dec 31, 2016, book value per share was $74.26 and tangible book value per share was $64.57, both up 7% from the year-ago period.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There has been one downward revision for the current quarter.

Citigroup Inc. Price and Consensus

Citigroup Inc. Price and Consensus | Citigroup Inc. Quote

VGM Scores

At this time, Citigroup's stock has an average Growth Score of 'C', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for value investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Interestingly, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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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.


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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