Is Citigroup Stock Attractive At The Current Levels?

Citigroup’s stock (NYSE: C) has lost 28% YTD, as compared to the 22% decline in the S&P500 over the same period. Further, the stock is currently trading at $43 per share, which is 33% below its fair value of $64 – Trefis’ estimate for Citigroup’s valuation. The bank posted better than expected results in the second quarter of 2022, with revenues increasing by 11% y-o-y to $19.6 billion. It was driven by a 20% rise in the institutional client group (ICG) and a 6% improvement in the personal banking & wealth management (PBWM) revenues, partially offset by a 15% decrease in the legacy franchise unit. The ICG division benefited from a 28% increase in the services sub-segment (treasury & trade services and securities services) and a 25% growth in sales & trading business, somewhat reduced by a 46% drop in the investment banking revenues. Similarly, growth in PBWM was driven by a 12% increase in the net interest income (NII) because of higher interest rates and outstanding loan balances. On the cost front, the provision for credit losses increased from -$1.1 billion to $1.3 billion. Overall, the adjusted net income reduced 27% y-o-y to $4.2 billion. Further, the firm has temporarily suspended its share repurchase program.

The bank’s top line grew 4% y-o-y to $38.8 billion in the first half of 2022. It was primarily due to higher revenues in services, sales & trading, and credit cards (branded cards and retail services) divisions. On the flip side, investment banking and wealth management reported negative growth. Altogether, the total NII improved 9% y-o-y to $22.8 billion in the first two quarters, mainly due to interest rate hikes.

Moving forward, we expect the NII to continue its growth momentum over the subsequent quarters. The consensus estimates for Q3 revenues and earnings are $18.31 billion and $1.58 respectively. All in all, we estimate Citigroup’s revenues to touch $73.3 billion in FY2022. Additionally, C’s adjusted net income margin is likely to decrease from 28.9% to around 18.5%, leading to an adjusted net income of $13.5 billion and an annual EPS of $6.85. This coupled with a P/E multiple of just above 9x will lead to the valuation of $64.