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Why Citigroup Might Surprise Investors in 1Q18 and 2018

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Expected operating performance

Citigroup (C) is expected to post EPS (earnings per share) of $1.62 in 1Q18, compared with $1.35 in 1Q17 and $1.28 in 4Q17. The steep expected rise is mainly due to growth in net interest income, expense management, and lower taxes. The bank’s top line is expected to rise 3.3% to $18.7 billion, helped by wider interest spreads, investment banking fees, and trading income improvement.

Among major bankers (XLF), Citigroup and Bank of America (BAC) have outperformed Wells Fargo (WFC) and Goldman Sachs (GS). JPMorgan Chase (JPM) has maintained its operating performance in recent quarters due to investment banking growth and core banking. Citigroup, which has risen 21% over the past year, recently fell 9% after reaching a 52-week high.

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Numbers in 4Q17

In 4Q17, Citigroup beat the EPS estimate of $1.19 by posting adjusted EPS of $1.28. The growth, which came from its Global Consumer Banking segment, was partially offset by weak trading activity. Citigroup is well positioned to take advantage of its diversified global earnings, as improving credit offtake is slightly difficult to achieve in the United States amid rising operating flow.

Bankers are expecting subdued credit offtake due to rate hike expectations and lower tax allowing for higher operating cash flow. This momentum is expected to be partially offset by a push towards manufacturing and the growing economy. Non-interest earnings could see help from investment banking, whereas trading is expected to see marginal recovery amid improving volatility. However, weaker equities and bond markets might push for lower volatility in the upcoming quarters.

Citigroup had a book value and tangible book value of $70.85 and $60.40, respectively, on December 31, 2017. In this series, we’ll look at Citigroup’s expected performance in 2018, segment-wise performance, valuation, dividends, and repurchases, as well as macro policies affecting the sector.

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