Citigroup Earnings Preview: Third Quarter 2009

Citigroup [[C]] is scheduled to report their third quarter 2009 results before the market opens on Thursday, October 15. Based on our analysis, we at are expecting Citi to report better than expected quarterly results that will exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $20.95 billion and EPS of ($.20). This would represent a 40% increase in revenues from last year’s $16.68 billion in the same period. The current analyst consensus estimates calls for revenues of $20.49 billion and EPS of ($.21).


After easily exceeding Wall Street’s consensus estimates the last two quarters, we expect Citigroup to only marginally exceed the Street’s expectations this quarter. The company continues to face massive credit losses as unemployment continues to weigh on consumers. Over the last three months, another 768,000 have lost their jobs and the unemployment rate has risen from 9.5% to 9.8%. Unfortunately, improvements in the labor markets are not expected until at least 2010.


Last quarter, credit losses climbed 81% to $12.4 billion and showed further deterioration from the $10.3 billion recorded in the first quarter. While Citi’s stock has soared since dropping below $1 in March, the stock has been treading water since August as consumers remain concerned over future credit losses. We believe the stock will likely remain below $5 until there is clear evidence that these credit losses are abating.


Share Performance

Since the beginning of the year, Citigroup’s shares have fallen 31%, but are up over 300% since March. In 2008, Citi’s shares fell an amazing 76% and badly underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 66x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. We continue to view Citigroup as the most speculative stock within the financial sector and feel that credit losses continue to pose significant risk despite the improving economy.


Recommendation: Hold


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