NEW YORK (TheStreet) -- Citigroup (C) shares were up Friday on the news that Citi had passed the Fed's annual stress test by exceeding the minimum amount of capital needed to survive a hypothetical serious economic downturn.
"The annual stress test is one of the Federal Reserve's most important tools to gauge the resiliency of the financial sector and to help ensure that the largest firms have strong capital positions," Federal Reserve Governor Daniel K. Tarullo said. "Each year we are making substantial improvements, which have helped make the process even stronger than when we first conducted the stress tests in the midst of the financial crisis five years ago."
Though Citigroup's Tier 1 common ratio --high quality capital as a share of risk-weighted assets -- of 7% was more than enough to pass the 5% test threshold, it was well below the 8.2% industry average.
Citigroup has come out and contested the numbers, however, saying that it believes that its ratio should be three percentage points higher than the Fed's calculations. The stress test is the first step in an evaluation process the Fed conducts to determine whether a financial firm like Citigroup can continue with proposed share buyback plans.
Citigroup shares were up 0.3% to $50.32 on Friday.
TheStreet Ratings team rates CITIGROUP INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate CITIGROUP INC (C) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, attractive valuation levels, notable return on equity and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- CITIGROUP INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CITIGROUP INC increased its bottom line by earning $4.25 versus $2.46 in the prior year. This year, the market expects an improvement in earnings ($4.90 versus $4.25).
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Commercial Banks industry. The net income increased by 105.3% when compared to the same quarter one year prior, rising from $1,196.00 million to $2,456.00 million.
- Regardless of the drop in revenue, the company managed to outperform against the industry average of 11.8%. Since the same quarter one year prior, revenues slightly dropped by 4.7%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Commercial Banks industry and the overall market, CITIGROUP INC's return on equity is below that of both the industry average and the S&P 500.
- You can view the full analysis from the report here: C Ratings Report