Citigroup Stock Has Regained 50% Of Its Lost Value Over Recent Weeks, But Can It Grow More?

by Trefis Team
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Citigroup
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Citigroup’s stock (NYSE: C) is up over 50% since hitting a low of $35 on March 23 to its current level of $53, but we believe it still has some upside potential. Why is that? The key is Citigroup’s stock is still about 32% lower than it was at the end of 2019, and around 3% lower than the figure seen at the end of 2016. Our dashboard Why Citigroup Stock moved 43.4% between 2016 and 2019 provides the key numbers behind our thinking, and we explain more below.

Some of this rise in the banking giant’s stock over the last three years is justified by the roughly 6% growth in Citigroup’s revenues from 2016 to 2019, which translated into an almost 33.5% growth in Net Income. The growth in net income was higher than revenues due to the compound effect of a slight decline in compensation cost as a % of revenues and a drop in effective tax rate from 30% in 2016 to 18.5% in 2019. The EPS figure was much higher at 70.5%, driven by massive share buybacks and growth in net income. Specifically, the company has invested about $46.5 billion in repurchases in the last three years, resulting in about 22.1% lower outstanding shares. Notably, Citigroup has suspended its share repurchase program till the end of Q2 2020 due to the effect of the coronavirus crisis.

Citigroup’s P/E ratio dropped from about 11.6x at the end of 2016 to over 9.7x at the end of 2019. While Citigroup’s P/E is down to about 6.6x now, there is an additional possible upside for Citigroup’s multiple when compared to levels seen in the past years – P/E of 9.7x at the end of 2019, and 7.4x as recent as in late 2018.

How Is Coronavirus Impacting Citigroup’s Stock?

The economic downturn could cause significant losses for businesses and individuals alike, impacting their loan repayment capability. This could result in sizable losses for Citigroup, as it has a substantial loan portfolio of consumer and commercial loans. Further, as the economy slows down, it will likely become expensive for the bank to attract funding, negatively impacting all its operations. That said, the bank’s Sales & Trading operations are likely to drive positive revenue growth due to higher trading volumes, reducing the impact of weak revenues in other segments. While the company’s results for Q1 saw a massive increase in provisions for loan losses due to expected loan defaults, we believe that Q2 will further confirm this reality with a drop in revenues across all the segments.

Further, if there are signs of abatement of the crisis by the time Q2 results are announced, the company’s stock could see a slight uptick. Further, Citigroup’s 32% decline since the beginning of 2020 means that the stock has underperformed the S&P 500 (-5%) as well as that for its peer Bank of America (-27%) over this period. This lends more support to our belief that the stock will see a notable improvement in price in the near- to mid-term.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of coronavirus’s impact on a diverse set of Citigroup’s peers. The complete set of coronavirus impact and timing analyses is available here.

While Citigroup has underperformed its peer Bank of America since the beginning of 2020, how has the latter fared over recent years? We have analyzed the movement in Bank of America’s stock over recent years in a separate interactive dashboard.

 

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