Citigroup's [C] share price has had a disappointing performance so far in 2020.
On the investment bank's worst day of trading this year, Citigroup's shares went as low as $34.62 before closing at $35.02 on 23 March, marking a 55.4% loss from the start of the year.
The downturn was 9.6% shy of its lowest point in half a decade – when the share price reached $31.98 on 11 February 2016.
Citigroup's share price managed to recover 43.77% of its lost value, between 23 March and 1 July, giving it a value of $50.35 and a market cap of $104.8bn.
However, as of 13 July, Citigroup's share price is still down 35.74% year-to-date at $52.20.
With the bank's second quarter earnings due on the 14 July, what can investors and traders expect, and what effect will the report have on Citigroup's share price performance?
Analysts bearish ahead of Citigroup's earnings
When Citigroup announced its first quarter earnings on 15 April, it reported earnings of $1.05 per share.
Although this was a 78% drop from the previous year's $1.87 earnings per share, it beat the Zacks consensus estimate of $0.89 per share, representing an earnings surprise of 19.10%.
According to the research publication, the better than expected earnings marks the fourth consecutive quarter where Citigroup has beaten the consensus EPS estimates.
For the quarter ended 31 March, Citigroup reported a revenue increase of 11.2% year-over-year to $20.7bn, which also beat the Zacks consensus estimate by 8.63%.
While the bank was "significantly impacted by the COVID-19 pandemic", Citigroup's CEO Michael Corbat was cautiously optimistic with his outlook.
In a statement released alongside the results, he said: "COVID-19 is a public health crisis with severe economic ramifications. All of the work we have done in recent years has put us in a very strong position from a capital, liquidity and balance sheet perspective."
“COVID-19 is a public health crisis with severe economic ramifications. All of the work we have done in recent years has put us in a very strong position from a capital, liquidity and balance sheet perspective” - Citigroup's CEO Michael Corbat
Looking ahead to the second quarter, analysts are expecting a year-over-year decline in earnings and lower revenues, according to Zacks.
Gerard Cassidy, an analyst at RBC Capital Markets, is cautious. In a note seen by Barron's, the analyst said: "the upcoming 2Q20 results will be confusing, sloppy, and shocking for some banks, in our view, but our outlook is cautiously optimistic as we expect the economy to continue to gain momentum into the end of the year."
Zacks analysts estimate the US investment bank to post earnings of $0.45 per share in its upcoming earnings report. This would mark a 57.14% drop compared to the previous quarter.
The publication expects revenues, meanwhile, to reach $17.62bn, down 6.1% from the same period in 2019.
"We continue to believe this crisis will be an earnings issue for the banks, rather than a balance sheet issue similar to 2008-09," Cassidy continued. He expects median earnings per share to fall 17% sequentially and 56% year-over-year.
With the overall long-term picture looking optimistic, Citigroup's valuation of $109bn as of 10 July could present a buying opportunity. The stock has an attractively low price to book ratio of 0.59 as of 10 July.
“We continue to believe this crisis will be an earnings issue for the banks, rather than a balance sheet issue similar to 2008-09” - Gerard Cassidy, RBC Capital Markets analyst
An undervalued stock
For Chris Kotowski, managing director at Oppenheimer, Citigroup's share price is "woefully" undervalued, according to the Motley Fool. On 6 July, he reiterated a buy rating on the stock and lifted his share price target by $10 to $106, more than double of the stock's last close on 10 July.
Although Zacks has a consensus hold rating, Kotowski isn't a lone bull as the consensus among 26 analysts polled by CNN Money is also to buy. This comes from a majority of 21 with three giving the stock a hold rating and two an outperform.
Among 24 analysts offering 12-month share price forecasts, CNN Money reports a median target of $65.50, with a high estimate of $106 and a low of $50. The median estimate represents a 24.4% increase from 10 July closing price of $52.65.
As a cyclical stock, Citigroup's share price is tied to that of the US economy. If the country manages to steer clear of a pandemic-induced recession, then the bank will likely no longer see profitability issues in the long-term. In the meantime, the bank's struggling earnings could present a buying opportunity.
|PE ratio (TTM)||7.19|
|Quarterly Revenue Growth (YoY)||-14.1%|
Citigroup share price vitals, Yahoo Finance, 14 July 2020