Citigroup Inc. (C) is set to unveil its fiscal 2023 fourth quarter financial results on January 12. Analysts predict a 4% year-over-year revenue increase to $18.72 billion. However, the company's EPS is projected to decline by 34.3% from the corresponding period last year, reaching $0.76.

Meanwhile, C is poised to launch its exclusive China investment banking unit by year-end, intending to recruit approximately 30 personnel for initial operations. The Wall Street institution envisions potential expansion, with ambitions to triple the unit's workforce to nearly 100, emphasizing a focus on the burgeoning domestic capital market.

The company, providing diverse banking services in China, sought a wholly-owned brokerage license in late 2021, intensifying efforts to bolster its presence in the market. Recently, the Chinese securities regulator approved the establishment of the unit, allowing the U.S. bank to advance in its strategic expansion.

Concurrently, Wells Fargo (WFC) has designated C as its prime choice, forecasting a doubling of shares in the next three years amid the bank's transformative endeavors. Analyst Mike Mayo asserts that C is fundamentally reshaping and undergoing an unprecedented restructuring in modern history.

Mayo said, "They're modernizing the back office. They have a range of business exits, especially non-US consumer banking, which has been a failure for the last half century, so the upshot of this is, we think, significantly improving efficiency, returns, and stock price over the next three years. We see a double in the stock, not without risk."

Under the guidance of analyst Mike Mayo, the team sustains its Overweight rating on the bank, elevating the one-year price target to $70 from $60. Their anticipation extends to a price surge exceeding $100, projecting a growth trajectory from nearly $50 over the next three years.

Shares of C have gained 10.2% over the past month and 17.1% over the past six months to close the last trading session at $53.48.

Here are the financial aspects of C that could influence its performance in the near term:

Recent Developments

On December 19, 2023, Ethiopian Airlines, Africa’s largest carrier, announced a $450 million loan agreement for five new Boeing aircraft. Orchestrated by C’s Corporate Banking and Export Agency and Finance teams, this significant financing, the largest in Ethiopia in a decade, would bolster C’s footprint in the region.

Additionally, on December 18, 2023, C disclosed the augmentation of its market-leading ETF service, introducing capabilities to facilitate dual-access, fully transparent ETFs. These ETFs provide investors with comprehensive visibility into the portfolio composition.

In the dynamic ETF landscape characterized by rapid growth and innovation, C remains at the forefront. The commitment to enhancing and broadening its suite of solutions positions C as one of the select providers offering end-to-end services for Australian issuers, affirming its dedication to staying abreast of market developments.

Robust Financials

For the fiscal 2023 third quarter that ended September 30, 2023, C’s total revenues, net of interest expense, increased 8.8% year-over-year to $20.14 billion. Its income from continuing operations rose 2% from the year-ago value to $3.59 billion. Also, the company’s net income grew 1.9% from the prior year’s period to $3.55 billion.

As of September 30, 2023, C’s cash and due from banks amounted to $26.55 billion, up from $25.76 billion as of June 30, 2023.

Mixed Historical Growth

Over the past five years, C’s revenue increased at a CAGR of 1.9%. Its net interest income rose at a 3.4% CAGR during the same period. In addition, the company’s total assets increased at a 4.2% CAGR. However, its normalized net income declined at a CAGR of 5.2% over the same time frame.

Discounted Valuation

In terms of forward non-GAAP P/E, C is trading at 9.30x, 10.4% lower than the industry average of 10.38x. Its forward Price/Sales of 1.29x is 51.4% lower than the 2.65x industry average. Moreover, the stock’s forward Price/Book of 0.54x is 54.2% lower than the 1.17x industry average.

Mixed Profitability

The stock’s trailing-12-month CAPEX/Sales of 9.35% is 368.6% higher than the industry average of 2.00%. Its trailing-12-month cash per share of $122.81 is significantly greater than the $6.66 industry average. However, the stock’s trailing-12-month net income margin of 18.72% compares with the industry average of 25.31%.

POWR Ratings Exhibit Mixed Prospects

Citigroup’s outlook is apparent in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. The stock has a B grade for Value, which is in sync with its lower-than-industry valuation. The stock also has a B grade for Momentum, consistent with the stock closing the last trading session higher than the 50-day and 200-day moving averages of $46.64 and $45.21, respectively.

However, the stock has a C grade for Stability, which corresponds with its 24-month beta of 1.05. It also has a C grade for Quality, which reflects the company's moderate profitability.

The stock is ranked #4 in the 9-stock Money Center Banks industry. Click here to access C’s Growth and Sentiment ratings.

Bottom Line

C's sustained long-term growth is being propelled by strategic endeavors, including the imminent launch of an exclusive China investment banking unit, signaling a substantial expansion in the thriving domestic capital market. Restructuring initiatives and notable lean agreements are further bolstering the company's upward trajectory.

That being said, while the long-term outlook appears positive, given C's current challenges in profitability, growth, and stability, it might be prudent to await a more favorable entry point.

How Does Citigroup Inc. (C) Stack Up Against Its Peers?

While Citigroup has an overall grade of C, equating to a Neutral rating, you may check out these other A (Strong Buy) stocks within the Foreign Banks industry: Erste Group Bank AG (EBKDY), Banco Santander, S.A. (SAN), and Banco do Brasil S.A. (BDORY). To explore more Foreign Banks stocks, click here.  

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C shares were trading at $52.75 per share on Wednesday afternoon, down $0.73 (-1.36%). Year-to-date, C has gained 2.55%, versus a -0.01% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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