Is Citigroup at Discounted Valuations Post Stock Market Rout
Citigroup (C) stock has risen 8.6% over the past six months and 29.8% over the past year. The stock has outperformed peer banking stocks (XLF), helped by improved operating performance, higher net interest income, and private and investment banking growth.
Citigroup is winding down its legacy assets, which has allowed it to reduce losses, focus on core banking operations, and improve operating efficiency. The bank’s global presence has granted it diversified growth across its lending, investment banking, and trading platforms.
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In 4Q17, Citigroup saw a net loss of $18 billion, including a one-time charge of $22 billion related to the Tax Cuts and Jobs Act. Excluding special items, the bank had net income of $3.7 billion, a $3.4 billion rise from 4Q16.
In the recent stock market rout, banks fell 7%-8% from their highs. Citigroup is now trading at a price-to-book multiple of 1.1x, whereas the industry average is ~1.5x. The stock is trading at a lower multiple despite Citigroup’s strong operating performance in recent quarters. However, its valuation could improve as it offloads legacy assets in 2018. Peers’ multiples are as follows:
Citigroup’s one-year forward price-to-earnings multiple is 10.1x, reflecting a lower valuation than peers.
Expectations for 2018
In 2018, Citigroup is expected to post earnings per share of $6.42, reflecting 20.4% growth. The bank is expected to report revenue of $74.0 billion, representing a 3.6% rise year-over-year due to wider net interest margins, global banking growth, investment banking, and trading revenue. Volatility and global growth could be key expansion drivers for Citigroup in 2018.