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Citigroup Stock Soars 56.1% in a Year: Is It the Right Time to Buy?
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Citigroup, Inc. (C - Free Report) — one of the ‘too big to fail’ banks — had an impressive run, with the stock skyrocketing 56.1% in a year. The uptick outpaced a 49.2% rally registered by the industry and 25.8% growth of the Zacks S&P 500 composite.
When compared with its competitors in the banking space, C's performance is stronger. Shares of Wells Fargo & Company (WFC - Free Report) have surged 43%, while Bank of America (BAC - Free Report) appreciated 43.1% over the same period.
Image Source: Zacks Investment Research
Given the continuous strength of C’s shares, many investors might be tempted to buy the stock. But is now the right time to invest?
To answer this, it’s important to discuss and analyze various factors at play.
Citigroup’s Transformation Plan: A Step for Future Growth
Citigroup's multi-year transformation plan includes the amendment of its consent orders with the FRB and OCC. It is undergoing a transition that involves rectifying decades of underinvestment in its infrastructure, transforming the organization's operations beyond regulatory compliance and making investments that will serve present customer demands and yield long-term benefits.
Over the last several years, Citigroup has made major investments to modernize its infrastructure, simplify and automate manual processes, enhance data quality and governance, strengthen controls and reduce risk.
Following this strategy, the company increased efficiency and scale in the risk management of Citi's Global Spread Products division, with 99% of risk computations currently taking place on cloud-based infrastructure. To avoid human trade errors, it implemented automated controls that covered more than 80% of transaction volumes across the Markets segment.
The company also boosted reliability and reduced downtime by simplifying system restoration to a single click for 30% of critical applications. This will help it optimize virtual workloads and can reduce data center space and operational costs.
Citigroup Organizational Overhaul to Reduce Costs
Citigroup’s CEO Jane Fraser is carrying out a comprehensive overhaul to improve its performance, cut costs and simplify businesses.
The company completed its organizational simplification in the first quarter of 2024, resulting in a simpler management structure and improved accountability. The new operating model consists of five reportable segments and a new financial reporting structure.
These new segments operate across two regions — North America and an international group. The restructuring resulted in a streamlined and straightforward management structure that is aligned with and supports the bank's strategy.
The reorganization trimmed management layers and now operates under eight layers rather than 13. As part of the turnaround, Citigroup aims to shrink its workforce by 20,000 over the next two years. With fewer layers, increased spans of control and significantly reduced bureaucracy and unnecessary complexity, the company will be able to operate more efficiently.
These efforts are already paying off, as the company witnessed a downward trend in its expense base in the past year.
Expense Trend
Image Source: Citigroup
Citigroup’s Focus on Core Operation to Stoke Fee Income Growth
The company has been pursuing growth in core businesses by streamlining international operations. This June, it sold its China-based onshore consumer wealth portfolio to HSBC China. The bank winded down its U.K. retail banking business and plans to expand personal banking and wealth management businesses in the region.
The previously announced wind-down of the company’s consumer banking businesses in Korea and overall presence in Russia are in progress. C is preparing for a planned IPO of its consumer, small business and middle-market banking operations in Mexico. It restarted the sales process for the consumer banking business in Poland. In July, the company announced its plan to discontinue operations in Haiti.
Since announcing its intention to exit consumer banking businesses across 14 markets in Asia, Europe, the Middle East and Mexico as part of its strategic refresh, the company exited from Australia, Bahrain, India, Indonesia, Malaysia, the Philippines, Taiwan, Thailand and Vietnam. Such exits will free up capital and help it pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke fee income growth.
With these initiatives, the company projects revenues to register a compounded annual growth rate (CAGR) of 4-5% by 2026-end.
Image Source: Citigroup
Rate Cut Signal to Provide More Impetus to Citigroup
At the Kansas City Fed's annual economic symposium in Jackson Hole on Aug. 23, Powell stated, ‘The time has come for policy to adjust.’ The Fed kept its influential lending rate at its highest level of 5.25-5.50% since 2001 to tame inflation, which has been gradually cooling down.
Powell stated the central bank has ‘ample room’ to maneuver as policy enters its next phase. He stressed that the timing and speed of reduction would ‘depend on incoming data,’ but markets rapidly moved to price in four rate cuts of 25 basis points each by the end of 2024.
The rate cut signal is a positive development for banks, including Citigroup, which has been reeling under increasing funding cost pressure. While higher rates have led to a significant jump in banks’ net interest income (NII), the same increased funding costs, which dented margins.
Citigroup's NII and net interest margin (NIM) have been subdued by the increased funding costs as the high interest rate environment puts pressure on it. In the first half of 2024, C’s NII dropped by 1%. For 2024, management projects NII (excluding Markets) to be modestly down compared with 2023 levels.
NIM declined to 2.41% in the second quarter of 2024 compared to 2.48% in the year-ago quarter. As interest rates come down, it will be a boon and support NIM expansion.
Citigroup’s Hurdles: Regulatory Issues
Citigroup has been facing heightened regulatory scrutiny lately. This month, it made the headlines for breaching the Federal Reserve’s Regulation W, which limits intercompany transactions. Those breaches led to discrepancies in its internal liquidity reporting. This was reported by Reuters, citing an internal company document.
This violation is not a single incident that reflects systemic inadequacies in Citigroup's regulatory compliance practices. Last month, the U.S. bank regulators penalized the company with a $136-million fine for failing to make adequate progress in fixing data management issues.
These ongoing regulatory litigations are significant obstacles for the bank amid its attempts to transform and streamline its operations to boost its stock price.
Citigroup Estimates Show Mixed Sentiment
In the past two months, the Zacks Consensus Estimate for 2024 earnings has moved downward, while 2025 earnings have moved upward.
Image Source: Zacks Investment Research
Citigroup’s Valuation: A Bargain or a Risk?
From a valuation standpoint, Citigroup appears inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month price-to-earnings (P/E) multiple of 9.23X, below the industry average of 11.79X. The stock is also significantly below its peer BAC and WFC’s current forward 12-month P/E of 11.85X and 11.20X, respectively.
Image Source: Zacks Investment Research
Technical indicators are not supportive of Citigroup. The stock currently trades below its 50-day moving average. This underperformance could indicate a lack of strong momentum in the near term, suggesting a cautious outlook.
Image Source: Zacks Investment Research
Final View: Is It the Right Time to Buy Citigroup Stock?
To summarize, despite the solid growth potential Citigroup offers over the long run and its favorable valuation, it is not advisable to add this stock to one’s portfolio right now, considering the current high-interest rate environment along with ongoing legal scrutinization.
Although the expected rate cut might offer some support, Citigroup's performance in the future will be greatly influenced by its ability to negotiate the high-interest rate regime. We believe the company’s transformation initiatives to support its growth over the upcoming months.
Thus, investors should keep a close eye on this Zacks Rank #3 (Hold) stock before making a well-informed investment decision. Those who already own the C stock in their portfolio can retain it because it is less likely to disappoint over the long term, given strong fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Citigroup Stock Soars 56.1% in a Year: Is It the Right Time to Buy?
Citigroup, Inc. (C - Free Report) — one of the ‘too big to fail’ banks — had an impressive run, with the stock skyrocketing 56.1% in a year. The uptick outpaced a 49.2% rally registered by the industry and 25.8% growth of the Zacks S&P 500 composite.
When compared with its competitors in the banking space, C's performance is stronger. Shares of Wells Fargo & Company (WFC - Free Report) have surged 43%, while Bank of America (BAC - Free Report) appreciated 43.1% over the same period.
Given the continuous strength of C’s shares, many investors might be tempted to buy the stock. But is now the right time to invest?
To answer this, it’s important to discuss and analyze various factors at play.
Citigroup’s Transformation Plan: A Step for Future Growth
Citigroup's multi-year transformation plan includes the amendment of its consent orders with the FRB and OCC. It is undergoing a transition that involves rectifying decades of underinvestment in its infrastructure, transforming the organization's operations beyond regulatory compliance and making investments that will serve present customer demands and yield long-term benefits.
Over the last several years, Citigroup has made major investments to modernize its infrastructure, simplify and automate manual processes, enhance data quality and governance, strengthen controls and reduce risk.
Following this strategy, the company increased efficiency and scale in the risk management of Citi's Global Spread Products division, with 99% of risk computations currently taking place on cloud-based infrastructure. To avoid human trade errors, it implemented automated controls that covered more than 80% of transaction volumes across the Markets segment.
The company also boosted reliability and reduced downtime by simplifying system restoration to a single click for 30% of critical applications. This will help it optimize virtual workloads and can reduce data center space and operational costs.
Citigroup Organizational Overhaul to Reduce Costs
Citigroup’s CEO Jane Fraser is carrying out a comprehensive overhaul to improve its performance, cut costs and simplify businesses.
The company completed its organizational simplification in the first quarter of 2024, resulting in a simpler management structure and improved accountability. The new operating model consists of five reportable segments and a new financial reporting structure.
These new segments operate across two regions — North America and an international group. The restructuring resulted in a streamlined and straightforward management structure that is aligned with and supports the bank's strategy.
The reorganization trimmed management layers and now operates under eight layers rather than 13. As part of the turnaround, Citigroup aims to shrink its workforce by 20,000 over the next two years. With fewer layers, increased spans of control and significantly reduced bureaucracy and unnecessary complexity, the company will be able to operate more efficiently.
These efforts are already paying off, as the company witnessed a downward trend in its expense base in the past year.
Expense Trend
Citigroup’s Focus on Core Operation to Stoke Fee Income Growth
The company has been pursuing growth in core businesses by streamlining international operations. This June, it sold its China-based onshore consumer wealth portfolio to HSBC China. The bank winded down its U.K. retail banking business and plans to expand personal banking and wealth management businesses in the region.
The previously announced wind-down of the company’s consumer banking businesses in Korea and overall presence in Russia are in progress. C is preparing for a planned IPO of its consumer, small business and middle-market banking operations in Mexico. It restarted the sales process for the consumer banking business in Poland. In July, the company announced its plan to discontinue operations in Haiti.
Since announcing its intention to exit consumer banking businesses across 14 markets in Asia, Europe, the Middle East and Mexico as part of its strategic refresh, the company exited from Australia, Bahrain, India, Indonesia, Malaysia, the Philippines, Taiwan, Thailand and Vietnam. Such exits will free up capital and help it pursue investments in wealth management operations in Singapore, Hong Kong, the UAE and London to stoke fee income growth.
With these initiatives, the company projects revenues to register a compounded annual growth rate (CAGR) of 4-5% by 2026-end.
Rate Cut Signal to Provide More Impetus to Citigroup
At the Kansas City Fed's annual economic symposium in Jackson Hole on Aug. 23, Powell stated, ‘The time has come for policy to adjust.’ The Fed kept its influential lending rate at its highest level of 5.25-5.50% since 2001 to tame inflation, which has been gradually cooling down.
Powell stated the central bank has ‘ample room’ to maneuver as policy enters its next phase. He stressed that the timing and speed of reduction would ‘depend on incoming data,’ but markets rapidly moved to price in four rate cuts of 25 basis points each by the end of 2024.
The rate cut signal is a positive development for banks, including Citigroup, which has been reeling under increasing funding cost pressure. While higher rates have led to a significant jump in banks’ net interest income (NII), the same increased funding costs, which dented margins.
Citigroup's NII and net interest margin (NIM) have been subdued by the increased funding costs as the high interest rate environment puts pressure on it. In the first half of 2024, C’s NII dropped by 1%. For 2024, management projects NII (excluding Markets) to be modestly down compared with 2023 levels.
NIM declined to 2.41% in the second quarter of 2024 compared to 2.48% in the year-ago quarter. As interest rates come down, it will be a boon and support NIM expansion.
Citigroup’s Hurdles: Regulatory Issues
Citigroup has been facing heightened regulatory scrutiny lately. This month, it made the headlines for breaching the Federal Reserve’s Regulation W, which limits intercompany transactions. Those breaches led to discrepancies in its internal liquidity reporting. This was reported by Reuters, citing an internal company document.
This violation is not a single incident that reflects systemic inadequacies in Citigroup's regulatory compliance practices. Last month, the U.S. bank regulators penalized the company with a $136-million fine for failing to make adequate progress in fixing data management issues.
These ongoing regulatory litigations are significant obstacles for the bank amid its attempts to transform and streamline its operations to boost its stock price.
Citigroup Estimates Show Mixed Sentiment
In the past two months, the Zacks Consensus Estimate for 2024 earnings has moved downward, while 2025 earnings have moved upward.
Citigroup’s Valuation: A Bargain or a Risk?
From a valuation standpoint, Citigroup appears inexpensive relative to the industry. The company is currently trading at a discount with a forward 12-month price-to-earnings (P/E) multiple of 9.23X, below the industry average of 11.79X. The stock is also significantly below its peer BAC and WFC’s current forward 12-month P/E of 11.85X and 11.20X, respectively.
Technical indicators are not supportive of Citigroup. The stock currently trades below its 50-day moving average. This underperformance could indicate a lack of strong momentum in the near term, suggesting a cautious outlook.
Final View: Is It the Right Time to Buy Citigroup Stock?
To summarize, despite the solid growth potential Citigroup offers over the long run and its favorable valuation, it is not advisable to add this stock to one’s portfolio right now, considering the current high-interest rate environment along with ongoing legal scrutinization.
Although the expected rate cut might offer some support, Citigroup's performance in the future will be greatly influenced by its ability to negotiate the high-interest rate regime. We believe the company’s transformation initiatives to support its growth over the upcoming months.
Thus, investors should keep a close eye on this Zacks Rank #3 (Hold) stock before making a well-informed investment decision. Those who already own the C stock in their portfolio can retain it because it is less likely to disappoint over the long term, given strong fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.