Citigroup (C) Q1 Earnings: What's In Store For The Stock?

Citigroup Inc. (NYSE:C) is scheduled to report first-quarter 2017 results on Apr 13.

Driven by a decline in operating expenses, Citigroup delivered a positive earnings surprise of nearly 1.8% in the last quarter. Also, the company recorded higher fixed income market revenues. Moreover, a fall in cost of credit acted as a tailwind.

This earnings beat translated into improved price movement for the company. The gradually improving operating environment also supported the price performance. Over the last six months, shares of Citigroup gained just 21.7% as compared with 26.0% growth recorded by the Zacks categorized Banks – Major Regional industry.

Will the rally in stock price continue post first-quarter earnings release? It majorly depends on whether the firm is able to maintain its trend of beating earnings over the last four quarters.

Citigroup Inc. Price and EPS Surprise

Citigroup Inc. Price and EPS Surprise | Citigroup Inc. Quote

However, our quantitative model doesn’t call for an earnings beat this time around. A stock needs to have the right combination of the two key criteria – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) – for increasing the odds of an earnings beat.

Unfortunately, this is not the case here, as elaborated below.

Zacks ESP: The Earnings ESP for Citigroup is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are currently pegged at $1.24. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Citigroup’s Zacks Rank #3 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident of an earnings beat.

Factors to Influence Q1 Results

Improvement in Trading Revenues: Trading activity was strong in the fourth quarter. Particularly, fixed-income trading activity soared after the presidential election. In fact, after a prolonged weakness, fixed income, currency and commodity (FCC) trading rebounded in 2016. Uncertainty related to Trump's policy changes is expected to lead to better trading in the first quarter of this year.

Consumer Banking Revenues to Exhibit Growth: In consumer, management anticipates consistent revenue growth and positive operating leverage on a full-year basis, in constant dollars in both Asia and Mexico as investment plans for each region are executed. Revenue growth is expected in North America as well. In the first half of 2017, this growth is likely to reflect mostly the impact of the Costco (NASDAQ:COST) portfolio acquisition.

Expense to Trend Lower: Improvement in the efficiency ratio from 59% for Citigroup in 2016 to about 58% in 2017 is expected, as it continues to automate processes and enhance digital capabilities. The original target of achieving an efficiency ratio in the mid-50 range for Citicorp remains in place for Citigroup now and management believes to operate within that range as early as 2018.

Pressure on Net Interest Margin (NIM) Might Ease: Though the prolonged low-rate environment has taken a toll on the bank’s margins over the past several quarters, the Fed’s recent rate hike for the third time since the financial crisis, and its commitment to raise rates faster (two more times) this year based on a convincing pace of economic growth should help banks get rid of shrinking margins.

Investment Banking Fees to Climb: Global investment banking fees hit a 10-year high in first-quarter 2017, with more than half contribution from North America, as per Thomson Reuters data. The U.S. banks topped the league tables, with Citigroup securing the fifth position. Improving U.S. economy data, along with gaining market share, helped in recording higher investment banking fees. Therefore, Citigroup is also likely to report an impressive quarter.

Credit Costs to Rise: Citigroup’s cost of credit is expected to be higher, driven by loan growth, and seasoning and tax rate expected in the range of around 31%. Further, the full-year NCL rate is anticipated to be in the range of around 280 basis points in branded cards and 435 basis points in Retail Services for 2017, with some quarterly variability. Notably, NCL rate in Latin America is expected to be about 4.5% as the portfolio seasons; however, it is likely to remain below this level for the first half of 2017, reflecting strong credit quality and continued loan delinquency rates.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model, they have the right combination of elements to post an earnings beat this quarter.

BB&T Corporation (NYSE:BBT) has an Earnings ESP of +5.71% and a Zacks Rank #3. It is scheduled to report first-quarter results on Apr 20. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for SunTrust Banks, Inc. (NYSE:STI) is +2.41% and it carries a Zacks Rank #2. The company is scheduled to release first-quarter results on Apr 21.

The PNC Financial Services Group, Inc. (NYSE:PNC) has an Earnings ESP of +0.55% and a Zacks Rank #2. It is slated to report first-quarter results on Apr 13.

Want to learn more about major banks earnings? Check out our recent video article for additional information: The Hottest Big Bank Earnings Charts

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