On Feb 12, 2014, we issued an updated research report on Citigroup Inc. (C). The company recently reported dismal fourth-quarter 2013 results. With the fall in revenues, its profit level also lagged expectations. A low interest-rate environment and regulatory issues along with litigation risks remain as concerns. Further, considering the tepid economic recovery, we believe that robust top-line expansion will continue to be elusive in the near term.
The company posted earnings of 82 cents per share that lagged the Zacks Consensus Estimate of 95 cents. Notably, results in the reported quarter were impacted by CVA and DVA. Including CVA/DVA and the impact of the Credicard divestiture in the reported quarter, Citigroup reported net income of $2.7 billion or 85 cents per share.
This is the second consecutive quarter that Citigroup has missed the Zacks Consensus Estimate. In the trailing four quarters it missed the Zacks Consensus Estimate by an average of 1.94%.
Revenues came in at $17.8 billion for the quarter, down 1% from the prior-year quarter. Excluding CVA/DVA and other items, Citigroup revenues declined 2% from the prior-year period to $17.9 billion. Moreover, the figure was below the Zacks Consensus Estimate of $18.3 billion. The revenue decline was mainly due to a fall in fixed income markets revenue.
Though Citigroup has reduced operating expenses in every quarter for the last two years, improving the total efficiency ratio from 67% in 2011 to 58% in 2013, expenses still remain at elevated levels. Management expects quarter-to-quarter volatility in expenses, particularly driven by markets businesses in the coming quarters. Further, repositioning expenses are expected to remain elevated in the first half of 2014.
Lower-than-expected results triggered a downward revision in the Zacks Consensus Estimate, as analysts turned more bearish on the stock’s future performance. This is evident from the movement witnessed in the Zacks Consensus Estimate that decreased 1.8% to $5.03 for 2014 and around 1% to $5.74 per share for 2015, over the past 30 days.
Citigroup currently carries a Zacks Rank #5 (Strong Sell).
Key Picks from the Sector
Some better-ranked stocks worth considering include BB&T Corporation (BBT), Fifth Third Bancorp (FITB) and The PNC Financial Services Group, Inc. (PNC). All the three carry a Zacks Rank #2 (Buy).
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