Will Citigroup (C) Miss Earnings Estimates Again?

Citigroup, Inc. (C) is scheduled to report its first-quarter 2014 results on Monday, Apr 14, before the opening bell.

Though Citigroup delivered positive earnings surprises in the first two quarters of 2013, it missed in the remaining quarters. The company’s fourth-quarter earnings per share lagged the Zacks Consensus Estimate by 19.2%. Results were adversely affected by declining fixed income revenues and the impact of credit valuation adjustment (CVA) and debt valuation adjustment (DVA).

Will Citigroup disappoint again in the upcoming release? Let’s see how things have shaped up for this announcement.

Factors to Influence First-Quarter Results

The unfavorable macro scenario along with several of the company’s internal issues may weigh on Citigroup’s top line in the quarter.

The company is combating troubled times owing to the detection of fraud in its Mexico-based subsidiary that resulted in the reinstatement of fourth-quarter and 2013 results and triggered the Fed probe.

Further, the rejection of Citigroup’s capital plan under the Dodd-Frank Act supervisory stress test 2014 (DFAST 2014) by the Federal Reserve has brewed trouble.

We apprehend higher litigation costs in the quarter due to several other ongoing lawsuits. Alongside, owing to a volatile foreign exchange market, Citigroup may continue to report declining fixed income trading revenues.

Among others factors, weak loan growth and stringent regulatory norms in a persistently low interest rate environment could act as dampeners to the company’s financials.

However, Citigroup has some encouraging traits that may favorably support its results. These include its efforts to improve asset quality, expense management and its focus on shedding non-core assets. Moreover, the deposit portfolio has shown a decent improvement in all quarters of 2013.

Further, we believe Citigroup is poised to report strong capital ratios, as it exhibited healthy capital levels in the DFAST 2014. It should be noted that the rejection of the 2014 capital plan by the Fed was primarily based on qualitative factors.

Activities of Citigroup during the first quarter of the year were not enough to encourage analysts’ confidence. As a result, the Zacks Consensus Estimate for the quarter declined 1.7% to $1.18 per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Citigroup is likely to beat the Zacks Consensus Estimate in the first quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Earnings ESP: Citigroup’s ESP is -3.39%. This is because the Most Accurate estimate of $1.14 is below the Zacks Consensus Estimate of $1.18.

Zacks Rank: Though Citigroup’s Zacks Rank #3 increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings beat.

Other Stocks to Consider

Here are a few stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

The earnings ESP for The PNC Financial Services Group, Inc. (PNC) is +2.41% and it carries a Zacks Rank #3 (Hold). The company is scheduled to release its first-quarter results on Apr 16.

BankUnited, Inc. (BKU) has an earnings ESP of +6.82% and carries a Zacks Rank #2 (Buy). It is expected to report its first-quarter results on Apr 23.

First Horizon National Corp. (FHN) has an earnings ESP of +6.67% and carries a Zacks Rank #3 (Hold). It is expected to report its first-quarter results on Apr 17.

Read the Full Research Report on C
Read the Full Research Report on PNC
Read the Full Research Report on FHN
Read the Full Research Report on BKU


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