Rising Only Half the S&P’s Gain In 2023, Where Is Citigroup Stock Headed?

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Citigroup

Citigroup’s stock (NYSE: C) has gained 12% YTD, as compared to the 24% rise in the S&P500 over the same period. Further, the stock is currently trading at $51 per share, which is 8% below its fair value of $56 – Trefis’ estimate for Citigroup’s valuation

Amid the current financial backdrop, C stock has seen a decline of 15% from levels of $60 in early January 2021 to around $50 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. Notably, C stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -2% in 2021, -25% in 2022, and 12% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 (YTD) – indicating that C underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including V, JPM, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could C face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a recovery?

The bank outperformed the consensus estimates in the third quarter of 2023. It reported total revenues of $20.14 billion – up 9% y-o-y, driven by a 12% rise in the institutional client group and a 10% increase in the personal banking & wealth management units. The institutional client group benefited from higher investment banking, sales & trading, and treasury & trade solutions segments. Similarly, retail services and branded cards were primarily responsible for driving growth in the personal banking & wealth management division. On the cost front, provisions for credit losses witnessed an unfavorable increase (up 35% y-o-y) in the quarter. Overall, the adjusted net income improved 2% y-o-y to $3.55 billion.

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The bank’s top line grew 6% y-o-y to $61 billion in the first nine months of FY 2023. It was driven by a 16% growth in the net interest income, partly offset by a 9% drop in the noninterest revenues. Further, the provisions figure rose by 66% y-o-y to $5.64 billion over the same period. It led to an adjusted net income of $11.07 billion – down 10% y-o-y.

Moving forward, we expect the same trend to continue in the fourth quarter. Altogether, we forecast Citigroup revenues to touch $79.1 billion in FY2023. Additionally, C’s adjusted net income margin is likely to see some drop in the year, leading to an annual GAAP EPS of $5.92. This coupled with a P/E multiple of just above 9x will lead to a valuation of $56.

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 C Return 10% 12% -14%
 S&P 500 Return 4% 24% 112%
 Trefis Reinforced Value Portfolio 8% 39% 613%

[1] Month-to-date and year-to-date as of 12/26/2023
[2] Cumulative total returns since the end of 2016

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