Citigroup, Inc. (Ticker Symbol: CITI) kicked off the earnings season, reporting earnings that beat on the top and bottom lines on Monday. The financial services giant reported an earnings per share beat of $1.83 billion per share vs. Wall Street analysts’ expectations of $1.80 per share. Revenue also came in better than expected at $18.76 billion vs. Wall Street analysts’ expectations of $18.52. Additionally, net income reported for the quarter was also better than analysts’ expectations at $4.8 billion vs. $4.14 billion. Fixed income, commodity, and currency trading revenue was slightly up for the quarter, while equities trading revenue was less than analysts were expecting for the quarter, which weighed on share prices after the open.
The Federal Reserve reported its annual stress tests to measure the financial health of the top financial institutions in the country at the end of June. The Federal Reserve released that the top U.S. banks passed the stress tests and that they would be allowed to pay capital out to their shareholders. After the results of the test, Citigroup increased its dividend by .06 cents to .51 cents a share. The bank also announced an increase to its stock buyback program, raising its total amount of stock repurchases to $21.5 billion.
Above is a weekly chart of Citigroup’s stock price over the past eight years. The stock started out in 2012 finding support around the $24.00 price level. In the fourth quarter of 2012, the stock blasted off, rallying over 100% over the next 18 months. The stock took a breather after the run and spent the next two years trading in a $15 trading range between the $45.00 price level and the $60.00 price level. At the beginning of 2016, the stock broke down from its trading range to trade back down to the $25.00 price level, putting in its first oversold condition in its weekly Relative Strength Index in over four years.
In the third quarter of 2016, the stock broke through its downtrend, traded back above its weekly 100 and 200-day Moving Averages and proceeded to rally over 75% over the next two years. Citibank’s stock put in a top shortly after that while forming a bearish divergence pattern, where the stock makes a higher high in price but the Relative Strength Index makes a lower high, as indicated on the chart by the purple lines. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal, as occurred in Citibank’s case. The stock proceeded to sell off until the first quarter of 2019, where it put in another oversold reading in its RSI. Since then, the stock has found some life and is currently trading above both its 100 and 200-week Moving Averages.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 10 analysts offering 12-month price targets, the average price target for Citigroup stock is $79.90. According to that number, the stock is priced at a discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $71.86.
After passing the Federal Reserve’s stress test at the end of June, the major banks in the United States began increasing dividends and share buybacks. Long-term investors are being rewarded for holding Citi’s stock through capital appreciation and its yearly payouts through dividends. Investors in the financial sector should look to J.P. Morgan’s (Ticker Symbol: JPM) earnings release on July 16th for fresh news within the sector.