Citigroup Stock Has Growth Potential

Citigroup’s stock (NYSE: C) has gained 10% YTD, as compared to the 4% rise in the S&P500 over the same period. Further, the stock is currently trading at $50 per share, which is 16% below its fair value of $59 – Trefis’ estimate for Citigroup’s valuation. The bank posted mixed results in the fourth quarter of 2022, with revenues increasing by 6% y-o-y to $18 billion. It was driven by a 5% growth in the personal banking & wealth management (PBWM) segment, followed by a 3% rise in the Institutional Clients Group (ICG) revenues. The PBWM unit mainly benefited from an improvement in net interest income (NII) driven by loan growth and higher interest rates. Similarly, the ICG division witnessed a 32% jump in the services revenues coupled with an 18% increase in the sales & trading business. However, it was largely offset by lower investment banking and corporate lending revenues. Further, the legacy franchise segment reported a 6% drop due to a decline in NII. On the cost front, the provisions for credit losses saw an unfavorable build-up from -$465 million to $1.8 billion. It led to a 21% y-o-y decrease in the net income to $2.5 billion.

The bank’s top line grew 5% y-o-y to $75.3 billion in FY 2022. It was driven by a 4% growth in the PBWM unit, followed by a 3% increase in each of ICG and legacy franchise units. While the personal banking revenues increased due to higher NII, the global wealth management revenues were slightly down. Similarly, the investment banking and corporate lending businesses of ICG posted negative growth, partially offsetting the positive impact of higher revenues in other categories. Altogether, the net income was reduced by 32% y-o-y to $14.8 billion, primarily due to a significant jump in the provisions figure.

Moving forward, we expect Citigroup’s revenues to touch $77.8 billion in FY2023. Additionally, C’s adjusted net income is likely to remain around $11.1 billion in the year. This coupled with an annual GAAP EPS of $5.88 and a P/E multiple of just above 10x will lead to a valuation of $59.

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[1] Month-to-date and year-to-date as of 2/22/2023
[2] Cumulative total returns since the end of 2016

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