Citigroup Stock Is Beating S&P500 Index In YTD Returns, What To Expect?

Citigroup’s stock (NYSE: C) has gained 18% YTD, compared to the 14% rise in the S&P500 over the same period. Notably, Citigroup’s peer Goldman Sachs (NYSE: GS) is up 29% YTD. Overall, Citi stock is currently trading at $61 per share, which is 15% below its fair value of $71 – Trefis’ estimate for Citigroup’s valuation. 

Amid the current financial backdrop, C stock has seen little change, moving slightly from levels of $60 in early January 2021 to around $60 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. Notably, C stock has underperformed the broader market in each of the last 3 years. Returns for the stock were -2% in 2021, -25% in 2022, and 14% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that C underperformed the S&P in 2021, 2022, and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Financials sector including JPM, V, and MA, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could C face a similar situation as it did in 2021, 2022, and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

The bank surpassed the consensus estimates in the second quarter of FY 2024. It posted total revenues of $20.14 billion – up 4% y-o-y, driven by a 6% growth in sales & trading, a 3% in services unit, a 6% in personal banking, and a 38% jump in the investment banking division. However, the top line was somewhat offset by a 22% y-o-y drop in the all-other revenues. Overall, the growth was mainly driven by a 20% rise in the noninterest revenues, partially offset by a 3% decrease in the net interest income (NII) due to lower net interest yield. In terms of expenses, provisions for credit losses witnessed an unfavorable increase (up 36% y-o-y) in the quarter, offset by a 2% decline in operating expenses. It led to a net income of $3.2 billion – up 10% y-o-y.  

The bank’s top-line marginally improved to $41.2 billion in the first six months of FY 2024. It was driven by a 4% growth in the noninterest revenues, partly offset by a 1% drop in the NII. Markedly, the firm derives around 65% of its revenues from NII. On the cost front, the provisions figure rose by 27% y-o-y to $4.84 billion over the same period, followed by a 3% increase in the operating expenses. Altogether, the net income declined by 12% y-o-y to $6.59 billion.

Moving forward, we expect the third-quarter results to be similar. All in all, we estimate Citigroup’s revenues to touch $80.98 billion in FY2024. Additionally, C’s adjusted net income will likely remain around $11 billion in the year, leading to an annual GAAP EPS of $5.82. This coupled with a P/E multiple of just above 12x will lead to a valuation of $71.

[1] Returns as of 8/16/2024
[2] Cumulative total returns since the end of 2016

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