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Strong Consumer Banking to Support Citigroup (C) Q3 Earnings

Zacks Equity Research

Citigroup C is slated to report third-quarter 2019 earnings on Oct 15, before the opening bell.

Results are likely to show improvement on the back of consumer banking revenue growth from pickup in demand for Branded Cards and rise in deposits due to its digital efforts.

However, these positives are likely to have been partially offset by the slowdown in corporate lending and trade war concerns, which resulted in a sluggish environment for trading activities.

At an industry conference held this September, Mark Mason, Citigroup’s chief financial officer, stated that fixed-income and equities trading revenues will likely fall slightly on a year-over-year basis.

Other Factors to Influence Q3 Results

Strong Consumer Banking Revenues: In consumer banking, the company likely has seen continued strength in Mexico and Asia, lending support to revenues. Further, U.S. Branded Cards is likely to have witnessed revenue growth in North America.

Also, for 2019, management pointed other revenue tailwinds, including the absence of the FDIC surcharge, and a smaller expected drag from the winding down of legacy assets in Corp/Other. The to-be-reported quarter results should reflect these benefits.

Dismal Investment Banking Performance: Slowdown in Investment banking performance was witnessed in the quarter on uncertainties related to trade conflicts, Brexit and the Fed’s rate cut announcement. Thus, equity underwriting and debt origination fees might have declined slightly. Moreover, global M&A deal value and volume witnessed a year-over-year decline, thereby hurting advisory fees.

At Barclays Global Financial Services conference, Mason commented that investment banking revenues are expected to decline in third-quarter 2019.

Controlled Costs: Citigroup accelerated some of its cost-cut plans by restructuring and improving internal processes. Notably, management expects expenses for the third quarter to have declined on a sequential basis.

Muted Net Interest Income Growth: Flattish yield curve during the third quarter might have negatively impacted banks’ net interest margin. Also, per the Fed’s latest data, the overall lending scenario, particularly corporate lending, has been disappointing. This will have an impact on interest income.

Why a Likely Earnings Surprise?

According to our quantitative model, chances of Citigroup beating the Zacks Consensus Estimate in the third quarter are high. This is because it has the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Citigroup is +0.51%.

Zacks Rank: Citigroup currently carries a Zacks Rank #3.

Also, the Zacks Consensus Estimate for earnings of $1.97 suggests a 13.2% rise from the year-ago reported figure. Also, the consensus estimate for sales of $18.6 billion indicates nearly 1% growth.

Citigroup Inc. Price and EPS Surprise

Citigroup Inc. Price and EPS Surprise

Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote

Other Stocks That Warrant a Look

Here are some other stocks you may want to consider, as according to our model these have the right combination of elements to post an earnings beat this quarter.

Wells Fargo & Company WFC is scheduled to release results on Oct 15. It has an Earnings ESP of +5.79% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

M&T Bank Corporation MTB is scheduled to release results on Oct 17. The company, which carries a Zacks Rank of 3, has an Earnings ESP of +0.72%.

Earnings ESP for BancorpSouth Bank BXS is +2.61% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Oct 21.

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