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Trading to Aid Citigroup (C) Q3 Earnings Amid Coronavirus Woes
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Increase in client activities and rise in market volatility on the prevalent coronavirus concerns are likely to have aided Citigroup’s (C - Free Report) trading revenues (both equity and fixed-income), driving third-quarter 2020 earnings, slated for an Oct 13 release.
The coronavirus-pandemic induced global economic slowdown raised investors’ concerns, while the Federal Reserve’s efforts and support from government’s stimulus package acted as tailwinds. Thus, equity markets performed well during the quarter, with the fixed income markets witnessing a strong performance.
At a conference held last month, the company’s chief financial officer (CFO) Mark Mason said fixed income and equity revenues are likely to be up in the low double-digit range, year over year.
Other Factors at Play
Low Consumer Banking Revenues: Citigroup is expected to have witnessed strained consumer banking revenues due to reduced levels of consumer activity. Global card fees might have been hurt considerably on lower consumer spending.
Decent Investment Banking (IB) Fees: Global M&A activity was impressive during the July-September quarter as dealmakers across the globe were active during this period with rise in M&A deal value and volume. Therefore, this might have had a positive impact on Citigroup’s advisory fees.
Moreover, IPO activities were strong, and as companies tried to build liquidity to tide over the pandemic-induced crisis, there was a substantial rise in follow-up equity issuances.
Also, equity market performance was strong and overall debt issuances were on an upswing given the lower interest rates. Thus, equity underwriting and debt origination fees are expected to have gone up in the quarter under consideration.
Overall, the consensus estimate for IB fees of $1.19 billion indicates an 11.9% fall from the previous quarter’s reported number.
At last month’s industry conference, CFO Mason also mentioned the expectations of subdued investment banking revenues.
Muted Net Interest Income (NII) Growth: The Federal Reserve’s move to lower interest rates to near-zero level in March in a bid to support the U.S. economy from the coronavirus pandemic-induced slowdown might have dampened the bank’s net interest margin.
Also, per the Fed’s latest data, rise in loans might have been low during the quarter under review. Particularly, weakness in revolving home equity and consumer loans, along with commercial and industrial (C&I), are expected to have offset growth in commercial real estate loans. Apart from these, coronavirus concerns have hurt business sentiments across industries, which might have affected loan demand.
Therefore, a soft lending scenario is likely to have curtailed growth in Citigroup’s net interest income to some extent.
The Zacks Consensus Estimate for NII of $2.14 billion suggests an 18.9% decline from the year-ago quarter.
Rise in Expenses: Per Citigroup’s CFO, the bank would be accelerating investments in infrastructure and controls with $1 billion in additional investments intended for this year. Therefore, expenses are anticipated to be approximately flat to up slightly in the to-be-reported quarter compared with the prior quarter.
High Reserve Build: At a virtual conference last month, for the July-September quarter, Mason predicted additional reserves, though lower than the previous quarters, based on the prevailing macroeconomic concerns, including the sluggish pace of economic recovery.
Here is what our quantitative model predicts:
Citigroup does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is +1.84%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 4, which decreases the predictive power of ESP.
Over the last seven days, the Zacks Consensus Estimate for earnings has recorded an upward revision on analysts’ optimism. Yet, the estimate reflects a 51% plunge on a year-over-year basis.
Further, the Zacks Consensus Estimate for sales of $17.21 billion indicates a 7.3% decline from the prior-year quarter. Management also expects overall revenues to decline year over year in the high single-digit range.
Banks Worth a Look
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Oct 22. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +6.99%.
U.S. Bancorp (USB - Free Report) is scheduled to release quarterly results on Oct 14. The company has an Earnings ESP of +7.7% and currently carries a Zacks Rank of 3.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
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Trading to Aid Citigroup (C) Q3 Earnings Amid Coronavirus Woes
Increase in client activities and rise in market volatility on the prevalent coronavirus concerns are likely to have aided Citigroup’s (C - Free Report) trading revenues (both equity and fixed-income), driving third-quarter 2020 earnings, slated for an Oct 13 release.
The coronavirus-pandemic induced global economic slowdown raised investors’ concerns, while the Federal Reserve’s efforts and support from government’s stimulus package acted as tailwinds. Thus, equity markets performed well during the quarter, with the fixed income markets witnessing a strong performance.
At a conference held last month, the company’s chief financial officer (CFO) Mark Mason said fixed income and equity revenues are likely to be up in the low double-digit range, year over year.
Other Factors at Play
Low Consumer Banking Revenues: Citigroup is expected to have witnessed strained consumer banking revenues due to reduced levels of consumer activity. Global card fees might have been hurt considerably on lower consumer spending.
Decent Investment Banking (IB) Fees: Global M&A activity was impressive during the July-September quarter as dealmakers across the globe were active during this period with rise in M&A deal value and volume. Therefore, this might have had a positive impact on Citigroup’s advisory fees.
Moreover, IPO activities were strong, and as companies tried to build liquidity to tide over the pandemic-induced crisis, there was a substantial rise in follow-up equity issuances.
Also, equity market performance was strong and overall debt issuances were on an upswing given the lower interest rates. Thus, equity underwriting and debt origination fees are expected to have gone up in the quarter under consideration.
Overall, the consensus estimate for IB fees of $1.19 billion indicates an 11.9% fall from the previous quarter’s reported number.
At last month’s industry conference, CFO Mason also mentioned the expectations of subdued investment banking revenues.
Muted Net Interest Income (NII) Growth: The Federal Reserve’s move to lower interest rates to near-zero level in March in a bid to support the U.S. economy from the coronavirus pandemic-induced slowdown might have dampened the bank’s net interest margin.
Also, per the Fed’s latest data, rise in loans might have been low during the quarter under review. Particularly, weakness in revolving home equity and consumer loans, along with commercial and industrial (C&I), are expected to have offset growth in commercial real estate loans. Apart from these, coronavirus concerns have hurt business sentiments across industries, which might have affected loan demand.
Therefore, a soft lending scenario is likely to have curtailed growth in Citigroup’s net interest income to some extent.
The Zacks Consensus Estimate for NII of $2.14 billion suggests an 18.9% decline from the year-ago quarter.
Rise in Expenses: Per Citigroup’s CFO, the bank would be accelerating investments in infrastructure and controls with $1 billion in additional investments intended for this year. Therefore, expenses are anticipated to be approximately flat to up slightly in the to-be-reported quarter compared with the prior quarter.
High Reserve Build: At a virtual conference last month, for the July-September quarter, Mason predicted additional reserves, though lower than the previous quarters, based on the prevailing macroeconomic concerns, including the sluggish pace of economic recovery.
Here is what our quantitative model predicts:
Citigroup does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Citigroup is +1.84%.
Zacks Rank: Citigroup currently carries a Zacks Rank of 4, which decreases the predictive power of ESP.
Citigroup Inc. Price and EPS Surprise
Citigroup Inc. price-eps-surprise | Citigroup Inc. Quote
Over the last seven days, the Zacks Consensus Estimate for earnings has recorded an upward revision on analysts’ optimism. Yet, the estimate reflects a 51% plunge on a year-over-year basis.
Further, the Zacks Consensus Estimate for sales of $17.21 billion indicates a 7.3% decline from the prior-year quarter. Management also expects overall revenues to decline year over year in the high single-digit range.
Banks Worth a Look
Here are a few bank stocks that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this time around:
The Earnings ESP for CullenFrost Bankers, Inc. (CFR - Free Report) is +8.07% and the stock carries a Zacks Rank of 3, at present. The company is slated to report third-quarter numbers on Oct 29. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Huntington Bancshares Incorporated (HBAN - Free Report) is set to release earnings figures on Oct 22. The company, which carries a Zacks Rank of 3 at present, has an Earnings ESP of +6.99%.
U.S. Bancorp (USB - Free Report) is scheduled to release quarterly results on Oct 14. The company has an Earnings ESP of +7.7% and currently carries a Zacks Rank of 3.
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.3% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>