Citigroup Earnings Preview: Improving Outlook

Citigroup [[C]] is scheduled to report their fourth quarter 2009 results before the market opens on Tuesday, January 19, 2010. 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 $20.17 billion and EPS of ($.29). This would represent a 1% sequential decline in revenues from last quarter’s $20.39 billion. The current analyst consensus estimates calls for revenues of $19.24 billion and EPS of ($.32).


Earnings Analysis

An improving credit environment and strengthening economy should help Citigroup deliver better than expected results in the fourth quarter. Citi reported net credit losses jumped 62% y/y to $8.0 billion in the third quarter, but that was actually an improvement of 5% from the second quarter. The labor markets are already showing signs of stabilization which should help ease the pressure on the American consumer.


The future for Citigroup looks much brighter now that they have completed their TARP repayment and the economy appears headed for real recovery. While the government still holds 34% of Citi’s stock, they are expected to exit their stake over the next 12 months. However, improving consumer credit trends will be the key going forward given Citi’s large consumer loan exposure.


Stock Performance

In 2009, Citigroup’s shares fell over 50% and underperformed the 19% gain in the Dow Jones industrial average. However, Citi’s shares staged a massive recovery from their low of $.97 in early March and reached over $5 in August.  



Citi’s stock is now trading at 52x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. While we don’t expect Citi to restore their dividend in 2010, we do anticipate that Citigroup will deliver much stronger earnings in 2010 than Wall Street is currently expecting.


Recommendation: Buy with a $5 price target


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