Better Revenue Outlook, Reserve Releases Help Citigroup
We're increasing our fair value estimate to $76 per share from $74.
Narrow-moat Citigroup (C) reported decent first-quarter earnings, easily beating FactSet consensus EPS of $2.60 with reported EPS of $3.62. This equates to a return on tangible common equity of 20% for the quarter. The biggest swing factor was provisioning for credit losses. As we had expected, the bank released a sizable portion of reserves, totaling roughly $4 billion. We have been more bullish than consensus on reserve releases, and with the current set of releases, the bank is nearing our full-year estimate already. We were expecting additional releases in 2022, but some of these may be pushed into 2021 if the environment continues to trend in a positive direction.
Citigroup’s higher consumer card focus remains a drag on revenue, with global consumer banking revenue down 4% from last quarter and 15% year over year. Meanwhile, investment banking and trading had another stellar quarter, helping institutional clients group product revenue grow 28% compared with last quarter and 5% year over year. Due to the stronger-than-expected market environment, management updated its revenue outlook for 2021 to down only midsingle digits, the high end of its previous guidance.
Expenses were up 4% year over year for Citigroup as a whole, with internal risk investments being a driving force. We expect additional expense outlays for internal investments and restructuring. In the meantime, Citigroup will depend heavily on the return on the consumer, specifically consumer credit card spending and balances. After incorporating these results into our projections, we are increasing our fair value estimate to $76 per share from $74.
|Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.|
Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.
We’d like to share more about how we work and what drives our day-to-day business.
We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.
How we use your information depends on the product and service that you use and your relationship with us. We may use it to:
To learn more about how we handle and protect your data, visit our privacy center.
Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.
To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.
Read our editorial policy to learn more about our process.