Sunday, January 17, 2016

Citigroup Beats Estimates for Fourth Consecutive Quarter; Stock Falls on Global Uncertainty

Citigroup posted a fourth quarter earnings per share (excluding impact of CVA/DVA) of $1.06 beating consensus estimates of $1.05, on January 15th.  This EPS disclosure represents just below a 17-fold increase from Q4 2014, when the company posted a $0.06 EPS, due mainly to absorbing legal and repositioning costs. This marks the fourth consecutive quarter that Citigroup surpassed EPS estimates. Citi posted top-line revenue of 18.64 billion for Q4 2015, surpassing estimates of $17.87 billion. 2015 saw annual earnings per share of $5.35.

Broken down, Citi saw Investment Banking and Fixed-Income, Currencies & Commodities revenues exceed expectations for Q4, whereas Equity revenue missed estimates by $165 million.  With the closing of their fiscal year Citi saw their annual net income amount to $17.1 billion. This not only represents more than a 130% increase YoY, but also marks the highest annual net income for Citi since 2006. Citi’s expenses as a percentage of revenue decreased to 57% for 2015 from 65% in 2014. This stems from Citi’s devotion to cutting unnecessary costs and repositioning itself to better suit its environment, along with the continued uptick of the US economy following the 2007 Housing Crisis.

Although the disclosure was almost all positive the share price tumbled 7% on the day to $42.47 at the week’s closing. This comes on the back of news relating to the uncertainty of the Chinese markets and the lowest oil prices seen since 2003. Citi is very exposed to China, asset-wise, causing shareholders to weigh the positive earnings news with the current global landscape. Citi was not the only victim of the current market situation, as the Dow, NASDAQ, and S&P all finished firmly in the red on Friday.

It looks as though Citi is in a good financial situation, moving forward into 2016. They are repositioned and look primed to increase revenues again next year. The stock continues to be very undervalued, currently at $42.47/share, compared to its end-of-the-year book value of $69.46 and tangible book value of $60.61. Hopefully, 2016 sees an end to the instability in the Chinese and oil markets, and an increase in revenues due to hiked interest rates. Regardless, we must keep a close eye on the situation as the stock is down almost 12% since January 1st, 2016.

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