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Stock Analyst Update

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.

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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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