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TSC Ratings' Updates: Citigroup

The following ratings changes were generated on Tuesday, Nov. 25.

We've downgraded Citigroup (C - Get Report) from hold to sell, driven by its feeble growth in its earnings per share, deteriorating net income, generally weak debt management, disappointing return on equity and generally disappointing historical performance in the stock itself.

Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior, a signal of major weakness within the corporation. Citigroup's return on equity significantly trails that of both the industry average and the S&P 500. The debt-to-equity ratio is very high at 3.14 and currently higher than the industry average, implying very poor management of debt levels within the company. Net income has decreased significantly when compared with the same quarter a year ago, falling from $2,212 million to -$2,815 million and underperforming both the S&P 500 and the diversified financial services industry.

Citigroup has experienced a steep decline of 261.4% in earnings per share in the most recent quarter in comparison with its performance from the same quarter a year ago. Earnings per share have declined over the last two years, and we anticipate that this should continue in the coming year. During the past fiscal year, Citigroup reported lower earnings of 67 cents vs. $4.25 in the prior year. For the next year, the market is expecting a contraction of 413.4% in earnings to -$2.10.

Shares are down 780.98% on the year, underperforming the S&P 500. Naturally, the overall market trend is bound to be a significant factor, and in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.

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