Citigroup (NYSE: C) is scheduled to report its fiscal Q1 2021 results on Thursday, April 15. We expect Citigroup to outperform the consensus estimates for earnings, while revenues are likely to fall short of expectations. The bank has surpassed the consensus estimates for earnings in each of the last three quarters, mainly due to strong sales & trading, and investment banking revenues, and a decline in provisions of credit losses over the third and fourth quarters. The company managed to match the 2019 revenue level in 2020. This was driven by a 13% y-o-y jump in the Institutional Client division (mainly sales & trading and investment banking), which offset the slump in core banking revenues mainly due to a lower interest rate environment. We expect the same trend to drive the first-quarter FY2021 results, as well.
Our forecast indicates that Citigroup’s valuation is around $78 per share, which is 7% more than the current market price of around $72. Look at our interactive dashboard analysis on Citigroup’s pre-earnings: What To Expect in Q1? for more details.
(1) Revenues expected to be below consensus estimates in Q1
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Trefis estimates Citigroup’s fiscal Q1 2021 revenues to be around $18.11 billion, 4% below the $18.82 billion consensus estimate. Citigroup revenues of $74.3 billion for the full year 2020 were at the same level as the 2019 figure. While higher trading activity in the securities market and a jump in underwriting deal volumes (both equity underwriting and debt issuance) boosted trading and investment banking revenues for all the main banks, Citigroup was no different. It witnessed a 13% y-o-y growth in its Institutional Client Group, based on the same trend. That said, Citigroup is heavily dependent on core banking revenues – Global Consumer Group contributes around 40% of the total revenues. The segment suffered a 9% y-o-y drop in 2020, due to interest rate headwinds and lower consumer spending levels. We expect the same trend to continue in the first quarter of FY2021, with sales & trading and investment banking pushing the revenues up and the weakness in core banking, hurting its top-line.
The sales & trading and investment banking revenues are expected to normalize in the subsequent quarters with improvement in the economy. However, the interest rates are unlikely to see an immediate recovery – the Fed decided to keep its benchmark rate near zero in the March 17th meeting. Both these factors will likely restrict Citigroup’s prospects in FY2021. On the slip side, consumer spending levels are likely to bounce back with an expected recovery in the economy, helping its top-line. Overall, the bank’s revenues are likely to reduce to $70.3 billion in FY2021. Our dashboard on Citigroup revenues offers more details on the company’s segments.
2) EPS likely to beat the consensus estimates
Citigroup’s Q1 2021 adjusted earnings per share (EPS) is expected to be $2.61 per Trefis analysis, almost 2% above the consensus estimate of $2.57. The bank’s EPS figures decreased in 2020 from $8.04 in 2019 to $4.87 in 2020. This was mainly due to a significant build-up in provisions for credit losses from $8.4 billion to 17.5 billion, to compensate for the higher loan default risk in 2020. That said, the bank saw a sequential decrease in provisions over the last two quarters of 2020, which indicates a perceived improvement in the loan default risk of its customers. Further, with the approval of the stimulus plan and availability of the Covid-19 vaccine – so far 119 million people have received the Covid-19 vaccine in the U.S., provisions are expected to see a further decrease in the first quarter of FY2021, boosting its profitability.
Further, we expect the same trend to continue in the year, enabling the bank to report an EPS of around $6.88 in FY2021.
(3) Stock price estimate 7% more than current market price
Going by our Citigroup valuation, with an EPS estimate of around $6.88 and a P/E multiple of just above 11x in fiscal 2021, this translates into a price of $78, which is 7% above the current market price of around $72.
Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year
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