Citi Shakes Off Election Uncertainty, Brexit Headwinds; Outlook Remains Constructive

With positive momentum in the branded card business, the 2H outlook for Citigroup Inc C remains encouraging, UBS’s Brennan Hawken said in a report. He maintained a Buy rating on the company, while reducing the price target from $54 to $53.

“Despite uncertainty in the UK, an upcoming US presidential election, and other macro headwinds, Citi’s outlook remained constructive,” Hawken wrote.

Branded Card Business Momentum

Citi’s branded card business continues to record gains. The Costco Wholesale Corporation COST portfolio, which closed in June, added $0.7 billion and 337k new accounts by the end of the month. Hawken expects the portfolio to add $200 million to the 3Q revenue, although this may be offset by an increase in expenses and loan loss reserve builds.

Moreover, the partnership with American Airlines Group Inc AAL has been renewed, although the increase in expenses could reduce PT earnings by about $50 million through the end of 2017, the analyst mentioned.

2H Outlook Encouraging

The analyst expects Citi’s NIM to recover to 290+ bps in the back half, boosted by Costco and a normalization of cash balances. Credit appears to be stable in Asia Card and revenue growth could likely resume this year. Citi has projected revenue growth in US Card in 2H16.

“In credit, GCB remains stable and has shown no signs of deterioration while in ICG the company has seen little stress outside of energy and expects lower credit costs in 2H16 than previously indicated,” Hawken stated.

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