Citigroup (C): A Detailed Analysis of Its Stock Performance and Future Outlook
Citigroup (C) is a widely respected bank that has garnered the attention of notable investors like Bill Nygren of Oakmark and Warren Buffett’s Berkshire Hathaway. These renowned value investors have expressed their confidence in the stock, prompting others to take interest as well. The stock has shown resilience in the past, with its price reaching $80 per share multiple times. However, it took over two and a half years for the stock to start its ascent towards $80 again. This time, Citigroup CEO Mike Mayo predicts that the stock will double from its late October ’23 lows. While temporary factors like the zero interest rate policy and capital markets played a role in the stock’s previous increases, a permanent improvement in fundamentals may also contribute to its growth.
EPS and Revenue Estimate Revisions for Citigroup (C): What to Expect
Following the release of Citigroup’s Q4 ’23 earnings, there have been fluctuations in EPS estimates. The estimates initially improved after October’s earnings report but settled back in December. However, estimates for 2024 and 2025 show an upward trend. CEO Jane Fraser has already announced plans to downsize the bank’s staff and exit the municipal bond business, which will affect around 100 employees. Notably, the number of Citi employees has increased by 20,000 since September ’21. It remains to be seen if the plan is to reduce recent hires. On the revenue front, there have been positive revisions since early ’23, although they have slid back since the October earnings report.
Valuation Analysis: Is Citigroup (C) an Undervalued Stock?
Citigroup (C) currently trades at just 9x ’23 earnings and offers a dividend yield of just under 4%. Despite appearing cheap, the bank’s return on equity (ROE) of 7% lags behind its peers. Moreover, the expected revenue growth between ’24 and ’26 is only 1% on average over the three-year period. CEO Jane Fraser will likely face pressure to improve ROE and return on assets (ROA) without making drastic cuts. However, given the low valuation and potential for growth, Citigroup may still appeal to investors.
Bank of America (BAC): Impact of Net Interest Income on Stock Performance
Bank of America (BAC) faced challenges in early ’23 due to less-than-robust net interest income. The bank struggled to capitalize on higher interest rates in both its investment and loan portfolios. However, BAC has shown signs of recovery, climbing back above the 200-week moving average. Unfortunately, EPS estimates have steadily declined since early ’23. Similarly, revenue estimates have also seen a steady slide since late 2022. The bank’s growth prospects appear modest, with an expected average revenue growth of 2% and EPS growth of 3% from 2024 to 2026. However, BAC’s valuation remains reasonable, trading at 9x-10x current earnings and at 1x book value and 1.2x tangible book value.
Comparative Analysis: Bank Stocks (JPM, C, BAC) vs. S&P 500 – A 13-Year Review
In a 13-year review, JP Morgan is the only bank among the three to outperform the S&P 500. Bank of America’s stock returns have only been half as impressive as JP Morgan and the broader market index. Looking ahead, the expected EPS growth from 2024 to 2026 is -2% for JPM, 2% for BAC, and 11% for C. Similarly, the expected revenue growth for the same period is -1% for JPM, 2% for BAC, and 1% for C. Valuation-wise, JPM trades at 11x current earnings, BAC at 10x, and C at 8x. In terms of price-to-tangible book value, JPM stands at 1.80x, BAC at 1.20x, and C at 0.60x. When considering return on equity (ROE) or return on tangible common equity (ROTCE), JPM leads with 15%-17%, followed by BAC with 14%, and C with 6%-7%. Despite Warren Buffett’s endorsement of Bank of America’s CEO, Brian Moynihan, the stock has not delivered the same level of returns as JPM and the S&P 500.
Disclaimer: This article is not intended as financial advice or a recommendation. The analysis presented here is solely for informational purposes. Past performance does not guarantee future results, and investors should carefully consider their own risk tolerance and adjust their portfolios accordingly. The EPS and revenue estimates are sourced from IBES data by Refinitiv.
Analyst comment
The news about Citigroup’s stock performance and future outlook is positive. Notable investors have expressed confidence in the stock, and the CEO predicts it will double in value. The fluctuations in EPS estimates may indicate some uncertainty, but positive revisions in revenue forecasts suggest potential growth. Overall, the market for Citigroup is expected to perform well due to its current resilience and potential for improvement in fundamentals.
For Bank of America, the news is neutral. The bank faced challenges with net interest income but has shown signs of recovery. EPS and revenue estimates have declined, indicating modest growth prospects. However, the bank’s valuation remains reasonable, which may still attract investors.
The comparative analysis of bank stocks (JPM, C, BAC) vs. the S&P 500 shows that JPMorgan outperformed both the index and the other banks. Bank of America’s stock returns have been less impressive, while Citigroup has shown potential for growth. Valuation-wise, JPMorgan is trading at a slightly higher multiple compared to Bank of America and Citigroup. JPMorgan also leads in terms of return on equity. The stock market is likely to continue favoring JPMorgan over the other banks.
