Citigroup Remains A Compelling Investment Opportunity: Analysts Take On Q3 Performance

Citigroup, Inc C stock rebounded from its low on Wednesday after reporting its third-quarter print. The bank earnings marked the beginning of the earnings season.

On Tuesday, Citigroup reported a third-quarter fiscal 2024 revenue growth of 1% to $20.32 billion, beating the analyst estimate of $19.84 billion.

Excluding divestiture-related impacts, revenues grew 3%.

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The net income of $3.24 billion decreased by 9%, primarily reflecting a decline in U.S. Personal Banking (USPB).

• B of A Securities analyst Ebrahim Poonawala maintained Citigroup with a Buy and raised the price target from $77 to $78.
• Oppenheimer analyst Chris Kotowski reiterated Citigroup with an Outperform and lowered the price target from $92 to $91.
• Goldman Sachs analyst Richard Ramsden maintained Citigroup with a Buy and a price target of $72, up by 1%.

B of A Securities: The strong results were driven by higher-than-anticipated fee revenues, with non-interest revenue (NIR) up 13% and equity trading and services revenue showing significant year-over-year growth of 32% and 8%, Poonawala noted.

However, net interest income (NII) came in below expectations, and guidance for the fourth quarter implied flat growth, signaling a potential downside compared to pre-third-quarter forecasts.

He added that fourth-quarter expenses are projected at $13.4 billion, slightly above consensus estimates of $13.2 billion.

During the earnings call, Poonawala flagged concerns about a potential regulator-imposed asset cap surfaced when management initially struggled to address the issue.

Although CEO Jane Fraser later clarified the lack of an asset cap, the earlier uncertainty triggered further selling. Despite these concerns, Citigroup’s resumption of share buybacks in the third quarter, after a pause in the second quarter due to regulatory negotiations, provided some reassurance to investors, the analyst said.

However, management’s limited ability to forecast the pace of buybacks dampened optimism.

Looking ahead, analysts raised Citigroup’s fourth-quarter and full-year 2025 EPS estimates due to the expected continuation of NIR growth, partially offset by higher expenses, Poonawala noted.

Citigroup remains a compelling investment, with shares trading at 9.1 times fiscal 2025 estimated EPS and 0.7 times tangible book value (TBV), the analyst said.

He added that the company’s ongoing transformation, including services and wealth management efficiency improvements, should help drive a re-rating toward TBV over the next year.

While NII faces short-term challenges, continued momentum in fee income, particularly in services, markets, and banking, will likely help Citigroup navigate the headwinds from interest rates, Poonawala said.

Oppenheimer: Chris Kotowski highlights Citi as one of the most undervalued banks in his coverage, trading at just 0.7 times tangible book value.

His $91 price target is based on a 70% price-to-earnings (P/E) multiple relative to consensus estimates for the S&P 500 Equal Weight, aligned with his forecasts for Citi. Kotowski views this as the lower end of the 70%–80% range, which he considers a fair value for banks.

The analyst noted that during Citi’s Q&A session, key concerns focused on credit card losses nearing the upper limit of the expected range, speculation about a possible undisclosed asset cap, uncertainty around whether the Banamex IPO will happen in 2025, and the plan to reduce expenses to $51 billion-$53 billion by 2026 from this year’s $53.8 billion.

Kotowski projected fiscal 2024 revenue of $81.01 billion and EPS of $5.95.

Goldman Sachs: Ramsden noted the Tuesday stock selloff presents a buying opportunity as the company maintained its full-year guidance, and the results underscored several positive trends in terms of momentum in the markets and wealth business and improving credit metrics in their card business.

Management reiterated its strategic priorities, which are focused on enhancing its risk and controls to meet regulatory requirements, the continued focus on expense discipline, and market share gains across several businesses.

Management also anticipates that regulators will refrain from imposing an asset cap shortly. While there is some uncertainty over the path for revenue growth into 2025, the analyst noted that his model only assumes 3% revenue growth into 2025, which is manageable given the momentum in the fee businesses and lower asset sensitivity versus peers.

Ramsden increased his fiscal 2024E EPS estimates by 1%. The analyst’s fiscal 2025 P/E target multiple of 9.5 times remains unchanged, resulting in his 12-month price target increasing 1% to $72.  

Ramsden projected fiscal 2024 revenue of $80.91 billion (prior $80.72 billion) and EPS of $5.81 (prior $5.74).

KeyBanc: Analyst Alex Markgraff took a closer look at reported credit and debit card volume data for insight following third-quarter prints from Bank of America Corp BAC, Citigroup, JP Morgan Chase & Co JPM, and Wells Fargo & Co WFC.

Collectively, Bank of America, Citigroup, JP Morgan, and Wells Fargo’s third-quarter credit card volume grew 5% Y/Y vs. 6% Y/Y in the second quarter, and debit card volume grew 4% Y/Y vs. 5% Y/Y in the second quarter.

The banks noted a deceleration in spending growth but emphasized that consumers remain resilient, with spending behavior stabilizing. JPMorgan pointed out that consumers have largely used up their “cash buffer,” while Bank of America reported that consumer payment growth in the third quarter persisted into October.

This modest slowdown in card volume growth contrasts with consensus estimates for third-quarter results from Mastercard Inc MA and Visa Inc V, which indicated an expected acceleration in credit and debit card volume. Despite this inconsistency, Markgraff views the risk to third-quarter revenue as minimal.

Price Action: C stock is up 2.35% at $64.08 at the last check on Wednesday.

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