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Citigroup Outshines in 2019: Will the Rally Continue in 2020?

Zacks Equity Research

Shares of Citigroup C appreciated 53.4% in 2019, outperforming the S&P 500 (up 27.6%) and the Zacks Major Regional Banks industry’s growth of 35.2%.

This impressive price performance is backed by the gradually-improving operating environment and rate scenario, which is beneficial for banks. Notably, after raising interest rates four times in 2018, the Federal Reserve reversed its stance and cut rates in July, September and October in 2019. However, the central bank kept rates unchanged at its latest meeting and hinted at a pause in rate cuts for this year.

Positive developments related to the long-standing U.S.-Sino trade conflict, and strong probability of Brexit within Jan 31, 2020 might also be catalysts.
 
Moreover, fundamentally, solid prospects, driven by revenue growth, expense management, steady capital-deployment activities and inorganic expansion strategy seem to be the reasons for this stellar performance.



Factors in Detail

For the past several years, a low interest-rate environment has been straining Citigroup’s net interest revenues. However, with improvement in the interest-rate scenario following the rate hikes and steady loan growth, the pressure started easing. In 2018 and the first nine months of 2019, uptrend in NIR was recorded, after witnessing a declining trend for years. Notably, management expects net interest income (NII) to be up 3-4% for the current year.

The New York-based lender has been successful in controlling costs in the past few years, aided by branch closures and winding down of legacy assets. Further, the bank slashed costs through layoffs in fixed-income and stock-trading divisions through 2019. Management noted that efficiency saving significantly outpaced incremental investments in the first half of 2019, realizing a net benefit to expenses of roughly $300 million. This amount is likely to increase to around $500-$600 million of net incremental savings for full-year 2019, along with an additional $500-$600 million of net incremental benefits in 2020.

Driven by a solid capital position, Citigroup remains committed toward enhancing shareholders’ value on steady capital-deployment activities. Following the approval of the 2019 capital plan, the company increased its quarterly dividend by 13.3% last July. In addition, the plan includes share-repurchase programs of up to $17.1 billion for the four-quarter period beginning Jul 1, 2019, summing the capital deployment to $21.5 billion.

Citigroup continues to execute growth strategies, such as making entry into the booming digital consumer payments industry and expanding its global market presence, thereby aiming to diversify revenue sources. This is also reflective of management’s focus on enhancing the company’s performance.

This apart, Citigroup is part of the industry, which carries a Zacks Industry Rank #74 (top 29%).

Additionally, estimates for this Zacks Rank #3 (Hold) stock have been witnessing upward revisions, of late. Over the last 60 days, the Zacks Consensus Estimate for its earnings moved up for 2019.

Citigroup’s earnings jumped 13.07% annually over the last three to five years. The earnings growth momentum is anticipated to continue in the near term as well. The company projects EPS (earnings per share) growth of 16.54% for 2019 and 9.47% for 2020.

Outlook

Citigroup has issued its guidance for the upcoming quarterly results. Recently, at an industry conference in New York, Citigroup’s CFO Mark Mason noted that he expects investment banking revenues to be flat to slightly down from the prior-year quarter. He further stated “We expect to continue to take share,” though wallets are declining. Mason anticipates market revenues to be up in high teens. Operating expenses might flare up on a year-over-year basis, while the same will likely decline sequentially.

Stocks to Consider

TD Ameritrade Holding Corporation AMTD has been witnessing upward estimate revisions for the past 60 days. Moreover, this Zacks #1 Ranked (Strong Buy) stock has rallied more than 1% in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.

JPMorgan Chase & Co. JPM has been witnessing upward estimate revisions for the past 60 days. Further, the company’s shares have gained 42.8% in 2019. At present, it carries a Zacks Rank of 2 (Buy).

State Street Corporation STT has been witnessing upward estimate revisions for the past 60 days. Additionally, the stock has jumped around 25.4% in 2019. It currently carries a Zacks Rank #2.

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