Event: C reports its Q1 earnings before the open on Monday, April 15th. The options are pricing in about a 3% move, relative to 2.75% avg. move over the past 4 and 8 quarters.
Sentiment: Wall Street analysts are bullish on the stock with 27 Buys, 5 Holds and 4 Sells, and an average 12 month price target of around $52. Short interest is negligible, at only 1.4% of float. Option open interest is evenly split between calls and puts, while the 1 month average volume has favored calls to puts by a ratio of 1.35 to 1.
Fundamentals / Valuation: The fundamental case for Citi rests on the realization of consensus estimates over the next couple years. The stock looks cheap if the estimates are correct, but bank earnings are historically volatile. The earnings results and growth projections over the next few years in C:
Analysts are expecting about 15% annual earnings growth over the next 3 years, which, if achieved, makes the stock look relatively cheap. But the real valuation case for Citigroup is based on its discount to book value, at 0.75x, vs. JPM, which is a cheaper P/E name than Citi, but trades at around 1x book. Here is the 5 year chart of Citigroup’s Price-to-Book Ratio (some prefer price to tangible book, but the 2 are closely correlated anyhow):
By this valuation metric, nothing really stands out. At the end of the day, the fundamental case for Citi depends on delivering on those earnings expectations. If it does, it’s cheap. If not, it’s not.
Price Action / Technicals: For all its volatility, C has basically traded between 25 and 50 for the past 5 years:
As I mentioned in the JPM earnings preview earlier this week, 1st quarter earnings for financial stocks has normally been a selling opportunity over the last 3 years. With C at the higher end of its 5 year range, this does not look like a good long entry at the least.
Volatility: The 30 day realized vol (in blue) and 30 day implied vol (red) have steadily drifted lower over the past year, as macro concerns in the broader market have been few and far between.
Citigroup and its peers have been much more affected by macro volatility than idiosyncratic news.
My View: Similar to JPM, Citigroup is pricing in an implied move close to its historical move, and the fundamental and technical outlook does not reveal any micro data points that stand out. This quarter is especially important given the expectations for earnings growth in C for the balance of the year. It will also be an initial report card on new CEO Corbat’s more focused strategy. No trade for me though.