Earnings

How will Q3 earnings affect Citigroup’s share price?

How will Q3 earnings affect Citigroup’s share price?

Citigroup’s [C] share price has had a torrid 2020, dropping nearly 50% after the coronavirus pandemic and growing US economic woes battered the stock. Short-lived rallies throughout 2020 have not helped Citigroup’s share price which, at $44.93 on 9 October, was down 42.2% for the year. Better-than-expected results helped Citigroup’s share price recover briefly in August. Will the same happen again after Citigroup releases its third quarter earnings report on 12 October?

Citigroup’s share price plunged to $34.67 on 23 March as the pandemic rocked the markets. Despite economic concerns as lockdown began to bite, and continued low interest rates, it staged a partial recovery to sit at $61.63 on 8 June. 

On 14 July, Citigroup’s share price fell back to $49.65 but then, helped by a better than expected set of Q2 results, it rose to $53.76 on 11 August. 

However, Citigroup’s share price fell back to $41.85 on 23 September, amid growing fears over a second wave of the virus, continued global economic disruption, and a Wall Street Journal report stating that regulators were set to censure it for risk-management failures.
What will results reveal?

Last quarter, Citigroup’s net income came in at $1.3bn, down from $4.8bn in the same period the year before, hit by a substantially higher allowance for credit loss reserves during the pandemic. Its revenues of $19.8bn were up from $18.8bn, driven by fixed income markets and investment banking.

In its previous guidance, Citigroup said it would set aside more in reserves to cover potential losses, but these would be “meaningfully lower” than in previous quarters. Mark Mason, CFO with Citigroup, blamed a slower pace of economic recovery in terms of “consumer behaviour and buying activity”.

The company expects revenues to climb by a low double-digits percentage in fixed income and equities trading, but Mason predicted group revenues will drop by high double-digits as they are hit by low interest rates and reduced consumer spending. 
Citigroup is expected to post $0.80 earnings per share in the third quarter, down from $2.07 this time last year, but up from $0.51 in the second quarter, according to Zacks.

These results are expected to be driven by those lower loan loss provisions and higher earnings from Citigroup’s investment banking activities thanks to increased bond issuances, a resurgence in merger and acquisition activity and a crowded market for new company listings.

Zacks forecasts that revenues will come in at $17.12bn, down 7.8% from the year-ago quarter.

 

Where next for Citigroup’s share price? 

 

 

“The same combination of recession, rising bad loans and pressure on lending margins has taken a toll on both sides of the Atlantic,” said Russ Mould, investment director at AJ Bell. 

“However, the combination of a recovery in the US economy and the assumption that the banks accounted conservatively in the first half of the year means that analysts are expecting a big rebound in net profits at the Big Four Main Street banks … in Q3 before a slight dip back … in Q4,” Mould noted.

There is still a fair share of bad news around, though — not just the struggling economy and fallout from the pandemic, but continued restrictions on dividend hikes and share buybacks.

In addition, on 7 October Citigroup was hit with a $400m fine from regulator the Office of the Comptroller of the Currency, for the previously highlighted long-standing risk management failures.

Morgan Stanley has a Neutral rating on Citigroup’s share price, and an average target price of $57.50. 

Erika Najarian, analyst with BofA Securities, holds a Buy rating and a $74 target for Citigroup’s share price. She believes the fine has lifted a “major overhang for the stock”.

According to Market Screener, the mean consensus amongst 25 analysts is a Buy rating with an average target price of $63.92 — a 42.3% uptick on Citigroup’s share price.

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