This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Don't Dawdle, Uncover 15% Value in Citigroup's Earnings

NEW YORK (TheStreet) -- With better-than-expected results from Wells Fargo (WFC - Get Report) and JPMorgan Chase (JPM), there were concerns that banking giant Citigroup (C) was getting a run for its money.

While Citigroup has the largest global reach amongst the major banks, this also means that Citigroup is highly weighted against the global economy. Not to mention, Citigroup still has a strong dependency on the housing recovery.

Among other reasons, these realities played a role in the bank failing the Federal Reserve stress test. As a consequence, the bank was denied its attempt to raise its quarterly dividend to 5 cents and institute a $6.4 billion stock buyback.

To add insult to injury, Bank of America (BAC), which has had similar (if not, greater) operational struggles, had its planned capital return proposal approved. For Citi, these (among other reasons) were cited as cause to avoid the stock ahead of the bank's first-quarter earnings report. But faithful shareholders were nonetheless rewarded.

Driven by management's diligent expense-controls, Citigroup posted $1.30 in earnings per share, which beat last year's mark by a penny and beat consensus estimates by more than 10%. While revenue of $20.1 billion was down 1% year over year, this was enough to match most estimates.

The revenue struggle, while still important, is not unique to Citigroup. Both Wells Fargo and JPMorgan suffered their own setbacks. This has been the result of a weak interest rate environment. In the case of Citigroup, the dip in revenue was driven mostly by a 3% decline at the bank's Citicorp division. Weakness in the the segment's Institutional Clients Group and Global Consumer Banking  divisions was mostly to blame.

But the key in the report was the still the sharp rise in earnings, which Citigroup helped by a 1% decline in operating expenses. Management has worked diligently to shed the bank's poor-performing assets, which helped offset legal expenses and costs related regulatory and compliance.

The bank has come under fire in recent weeks. But these results, including a slight improvement in the bank's efficiency ratio, demonstrate that the worst is over. And with 20% year-over-year decline in total costs of credit, the Street owes Citigroup an apology for underestimating the pace of its turnaround efforts.

Although the bank's dependence on an improved economy and housing recovery don't inspire great confidence, it also means that Citigroup is better positioned to capitalize when business conditions are back in full swing. For now, investors have to be encouraged that management is doing as good of a job as can be expected.

As it stands, the bank is no longer in "a mode of perpetual restructuring," as has been claimed. Citigroup, by dint of its new leadership and meaningful operational improvements, does not carry the same investment risk as it did two years ago.

These results continue Citigroup's recent streak of quarterly performances that answer questions about the bank's long-term strategy. To the extent management can maintain Citigroup's core banking operation by focusing on things like credit-cost reduction and growing its mortgage business, Citigroup will regain its status among JPMorgan and Wells Fargo.

And at around $48 per share, Citigroup stock is trading at a P/E that is 1 point and 2 points below Wells Fargo and JPMorgan, respectively. And when you factor in Bank of America's P/E of 18, which is 7 points higher, Citigroup is the best bargain in this sector. On similar metrics, the stock will trade at $55, or 15% higher.

At the time of publication, the author did not hold any stock in the companies mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
WFC $49.98 0.00%
AAPL $93.74 0.00%
FB $117.58 0.00%
GOOG $693.01 0.00%
TSLA $240.76 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs