Citigroup 14.10.2017 Earnings Report
Citigroup
Current Share Price: 72,18$
Leverage: X5
Stop Loss: 64,65$
Target: 83$
Annual Financing Costs: 5,475%
I heared several arguments why the citigroup share declined after the better than expected earnings report of 12th of October 2017. The best argument I can understand is that there was some profit taking by investors (hedge fonds, etc.). However the fundamentals do not support that decline from 12th of October 2017 (75,83$) to 13th of October 2017 (72,11$). The second best argument I got was the increase in cost of credit argument.
Here are the numbers:
Increase in Total Costs of Credit from 1,717 to 1,999 QoQ. (+16%)
Expenses down from 10,506 to 10,171 QoQ (-3%)
Revenues up from 17,901 to 18,173 QoQ (+2%)
Resulting in a Net Income increase from 3,872 to 4,133 QoQ (+7%)
The cost of credit argument is a bad measurement for future expectations as hurricans come and go in America and so does the cost of credit change. You can really see the improvements by the management in the reduction of expenses by 3%. This is a much better measurement for future expectations from this stock as these efficiency improvements are likely to stay or improve further.
Per Share this means to me as follows:
* EPS is up from 1,28$ to 1,42$ (+10,9%)
* My Deducted EPS is up from 1,28$ to 1,378$ (+7,66%)
* Book value per share is up from 77,36$ to 78,81$ (+1,87%)
I calculate the my deducted EPS by reducing the EPS because Citigroup repurchased 81 Million common shares and calculated EPS with the amount of common shares of the last quarter for real QoQ comparison.
The share price on 14th of July 2017 was 66,72 and is 72,11$ on 13th of October 2017 (up 8%).
For me from a value strategy standpoint the lowest share price according to these numbers would be a share price of 67,97$ (66,72$ + 1,87%) to get basically the book value of this quarter at a fair price but without taking the +7,66% improvement in EPS into consideration. That price should be a definitive Buy Signal if we reach a low at that price level again.
Citigroup Stock Price Declined After Earnings Release
An analyst of Societe Generale however sees the cost of credit argument differently and is also disappointed by the inability of Citigroup to increase their net interest margin with increased fed funds rates.
https://apps.newyorkfed.org/markets/autorates/fed%20funds
That's how positive news and earnings beating market estimations can transfer to negative news and lower stock prices if someone highlights the negative news of an earnings report.
See: https://www.cnbc.com/2017/10/16/citigroup-downgraded-on-credit-quality-concerns-disappointing-margins.html
If you look at the long term chart of the net interest margin citigroup was always fluctuating but on a high niveau compared to other US banks.
The last two quarters however Citigroup remained steady at a net interest margin of 2,72% because they still have to deal with some toxic assets of the financial crisis.
(See: https://www.benzinga.com/analyst-ratings/analyst-color/17/10/10181624/citigroups-q3-fails-to-impress-as-doubts-mount)
However if you analyse the net interest margin of all US banks together with the fed funds chart you find out that the argument of the analyst of Societe Generale about the flat net interest margin is not as important as the increase in EPS (which counts more for me as a shareholder). Here is a long term chart of the net interest of all US banks.
See: https://fred.stlouisfed.org/series/USNIM
You can see that we are on a long term view in a steady decline from 2010 to 2014 of the net interest margin and we finally see some recovery of that margin from 2015 to 2017. So there is not always a direct correlation of the fed funds rate and the net interest margin of a bank. As the net interest margin fluctuates at Citigroup we could very well see better margins in the next earnings release together with the higher EPS numbers which should result in higher stock prices as well.
Due Diligence On Ownership
Citigroup has a 74,36% rate of institutional ownership. The biggest owner is Blackrock Inc.
See: http://www.nasdaq.com/de/symbol/c/ownership-summary
Balance Sheet Analyses
ROE: 6,70%
Equity Ratio: 12,3%
P/B Ratio: 0,9
P/E Ratio: 14,7
A Final Word In Regards Of Risks Involved
If you are new on this blog please read through the introduction (the big picture) before following my strategy and advises. You can find this introduction here.
Conclusion
1) My stop loss at 64,65$ is only reachable with a non rational market reaction on the last decline and should be a safe price not to get stupid machine selling of my x5 leveraged investment into citigroup.
2) Increase in credit costs should affect all North American Banks similary. However bank shares of Citigroup declined stronger than other North American bank shares. That means the better than expected EPS increase of Citigroup seems to be not reflected by the share price of Citigroup at the moment.
3) My advice: Hold at current share prices and increase investment (BUY) if share prices decline below 65$ (unrational market reaction).
Comments on my nightly analyses are welcome.
Current Share Price: 72,18$
Leverage: X5
Stop Loss: 64,65$
Target: 83$
Annual Financing Costs: 5,475%
I heared several arguments why the citigroup share declined after the better than expected earnings report of 12th of October 2017. The best argument I can understand is that there was some profit taking by investors (hedge fonds, etc.). However the fundamentals do not support that decline from 12th of October 2017 (75,83$) to 13th of October 2017 (72,11$). The second best argument I got was the increase in cost of credit argument.
Here are the numbers:
Increase in Total Costs of Credit from 1,717 to 1,999 QoQ. (+16%)
Expenses down from 10,506 to 10,171 QoQ (-3%)
Revenues up from 17,901 to 18,173 QoQ (+2%)
Resulting in a Net Income increase from 3,872 to 4,133 QoQ (+7%)
The cost of credit argument is a bad measurement for future expectations as hurricans come and go in America and so does the cost of credit change. You can really see the improvements by the management in the reduction of expenses by 3%. This is a much better measurement for future expectations from this stock as these efficiency improvements are likely to stay or improve further.
Per Share this means to me as follows:
* EPS is up from 1,28$ to 1,42$ (+10,9%)
* My Deducted EPS is up from 1,28$ to 1,378$ (+7,66%)
* Book value per share is up from 77,36$ to 78,81$ (+1,87%)
I calculate the my deducted EPS by reducing the EPS because Citigroup repurchased 81 Million common shares and calculated EPS with the amount of common shares of the last quarter for real QoQ comparison.
The share price on 14th of July 2017 was 66,72 and is 72,11$ on 13th of October 2017 (up 8%).
For me from a value strategy standpoint the lowest share price according to these numbers would be a share price of 67,97$ (66,72$ + 1,87%) to get basically the book value of this quarter at a fair price but without taking the +7,66% improvement in EPS into consideration. That price should be a definitive Buy Signal if we reach a low at that price level again.
Citigroup Stock Price Declined After Earnings Release
An analyst of Societe Generale however sees the cost of credit argument differently and is also disappointed by the inability of Citigroup to increase their net interest margin with increased fed funds rates.
https://apps.newyorkfed.org/markets/autorates/fed%20funds
See: https://www.cnbc.com/2017/10/16/citigroup-downgraded-on-credit-quality-concerns-disappointing-margins.html
If you look at the long term chart of the net interest margin citigroup was always fluctuating but on a high niveau compared to other US banks.
(See: https://www.benzinga.com/analyst-ratings/analyst-color/17/10/10181624/citigroups-q3-fails-to-impress-as-doubts-mount)
However if you analyse the net interest margin of all US banks together with the fed funds chart you find out that the argument of the analyst of Societe Generale about the flat net interest margin is not as important as the increase in EPS (which counts more for me as a shareholder). Here is a long term chart of the net interest of all US banks.
You can see that we are on a long term view in a steady decline from 2010 to 2014 of the net interest margin and we finally see some recovery of that margin from 2015 to 2017. So there is not always a direct correlation of the fed funds rate and the net interest margin of a bank. As the net interest margin fluctuates at Citigroup we could very well see better margins in the next earnings release together with the higher EPS numbers which should result in higher stock prices as well.
Due Diligence On Ownership
Citigroup has a 74,36% rate of institutional ownership. The biggest owner is Blackrock Inc.
See: http://www.nasdaq.com/de/symbol/c/ownership-summary
Balance Sheet Analyses
ROE: 6,70%
Equity Ratio: 12,3%
P/B Ratio: 0,9
P/E Ratio: 14,7
A Final Word In Regards Of Risks Involved
If you are new on this blog please read through the introduction (the big picture) before following my strategy and advises. You can find this introduction here.
Conclusion
1) My stop loss at 64,65$ is only reachable with a non rational market reaction on the last decline and should be a safe price not to get stupid machine selling of my x5 leveraged investment into citigroup.
2) Increase in credit costs should affect all North American Banks similary. However bank shares of Citigroup declined stronger than other North American bank shares. That means the better than expected EPS increase of Citigroup seems to be not reflected by the share price of Citigroup at the moment.
3) My advice: Hold at current share prices and increase investment (BUY) if share prices decline below 65$ (unrational market reaction).
Comments on my nightly analyses are welcome.
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