Stock Exchanges Bet on Citigroup Inc’s Q2 Growth
Citigroup will release the data on its Q2 earnings results before the market opens on Monday. The New York-based bank is now being labeled as “the darling of Wall Street” as it outpaced the gains of other banking titans.
Citigroup is up by around 40% this year, while the broader S&P 500 index is only 20% higher. Wall Street expects the bank to report an $18.5-billion revenue and $1.81-earnings per share (EPS).
According to analysts within the stock exchanges, the bank’s revenue will most likely rise. Its net interest income will endure on pushing through with higher trends. Citigroup benefits from continuous development in loans and deposits.
Last year, the bank’s quarterly earnings came to $1.63 per share on revenue of $18.47 billion. For the full fiscal year, earnings will likely surge 13% year-over-year to $7.53 EPS. The full-year revenue of $74.21 billion would increase 2% year-over-year.
The bank’s operating expenses remarkably deteriorated by 3% in the first quarter, while Q1 earnings rose about 11%. Notably, Citigroup Inc. has been facing tough comparisons and lower sales reports.
The efficiency ratio of the bank also improved by 90-basis points to 57%, entering the higher levels of most projections.
The bank also announced an agenda of buying over $17 billion in shares within the next 12 months.
Citigroup also announced a hike on dividends at 13% after meeting the requirements of the Fed’s recent stress tests. While revenues will likely be neutral in Q2, analysts are anticipating a jump in EPS of more than 10%.
Trials of Citibank
However, despite how great it may sound for Citi, the market has its eyes affixed on the numbers to be released on Monday. The reaction of the stock will be grounded on significant metrics such as operating efficiency, not just top-line and bottom-line results.
The bank’s management’s views regarding interest rates. Additional factors are the effects of the bank on fiscal 2019. Notably, the management can also influence the stock exchanges and the market’s opinions—that its global exposure is an advantage.
Then, with this in line, Citigroup’s shares should immediately surge benefiting from its overall market recovery.
Together with a lesser effective tax rate, the bank’s bottom-line results of Monday’s report should validate the efficiency and effectiveness of its cost-reduction endeavors. However, the primary concern will be with regards to interest rates and the counterbalanced nature of a low-rate environment. Although it remains uncertain, there could be an effect on Citi’s efforts to generate revenue.
Even though the management aimed for its net interest income to grow by a minimum of $2 billion this year, the move still came before the Fed’s new attitude on monetary easing.
Also, a concern arose that profits from market-sensitive products could struggle over the next quarters to come.
On a positive note, the bank is witnessing improving credit growth and deposits-increase. These are likely to support its net interest margin, even if a rate hike becomes absent.
Analysts now believe that Citigroup can withstand the low-rate environment and proves its dependability and reliability.
On the perspective of valuation, the bank’s stock rating is at only nine times ahead of estimates.
This pricing is lower than all of JPMorgan Chase, Bank of America, and Wells Fargo’s combined.
Together with its robust share repurchase program and its annual 2.52%-dividend yields, compared to the S&P 500 index’s 2% yield, “the darling of wall street” is still being favored by a lot of investors in the market.