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Stock Analyst Update

A Mixed Quarter for Citigroup

Profitability is improving, but growth isn't perfect yet.


Narrow-moat-rated Citigroup (C) reported decent first-quarter results, with net income of $4.7 billion, or $1.87 per share, on $18.6 billion of revenue. Revenue was a bit lower than the same quarter last year (down 2%), however, solid expense control (down 3%) and a lower effective tax rate helped drive net income growth of 2%. Citi has reduced its average diluted shares by 9%, driving earnings-per-share growth of 11%. The bank has repurchased roughly 16% of the share base since investor day and has another $4.7 billion of capital left that it can return to shareholders in the second quarter of 2019.

Overall, Citigroup has certainly made a lot of progress. The bank is on track or already meeting some of the targets it set at its last investor day, mainly ones related to returns on tangible equity and capital returns. However, the bank is lagging in most of the growth goals, and more expense control will still be required to hit many of the efficiency goals. We may adjust our fair value estimate slightly as we re-evaluate Citi's growth prospects, but do not plan any major revisions. We are already modeling in Citigroup missing many of its 2020 goals and think the market is even more pessimistic. Growth may remain an issue, but the improvements in profitability are a welcome development for a franchise that has historically struggled here.

Citigroup's efforts to increase profitability continue to show results, with a return on tangible common equity of 11.9% for the quarter, up from 10.9% for full-year results last year. Management had set a goal of hitting a 12% return on tangible common equity in 2019, and this certainly puts the bank on the right trajectory to meet that goal. The tax rate for the quarter was a bit below where it should be for full-year results, therefore the bank still isn't quite at the 12% mark; however, a bit more growth combined with continued expense control should reasonably have Citi meeting or getting very close to this profitability goal.

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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.