On Nov 29, 2013, we reiterated our long-term recommendation on Citigroup Inc. (C) at Neutral based on the company’s global footprint and attractive core business along with its expansion in the emerging markets. Yet, a low interest-rate environment and regulatory issues along with litigation risks remain concerns. Further, considering the tepid economic recovery, we believe that robust top-line expansion will remain elusive in the near term.
Citigroup’s long-term strategy to shrink its non-core assets and increase its fee-based business mix would improve the valuation over time. The run down of Citi Holdings, its legacy problem assets portfolio, is on track. Citi Holdings’ assets decreased 29% from the prior-year quarter to $122 billion and represented only 6% of the company’s total assets at the end of third-quarter 2013.
Despite the overall sluggish economic environment, Citigroup’s total deposits surged 1.0% year over year in third-quarter 2013. Therefore, deposit balances are poised to grow amid an improving economy.
In a tepid economic recovery, bolstering revenue has become a challenge. Therefore, Citigroup continues to focus on efficiency improvement measures and expense management efforts. Notably, management aims to continue to pursue ongoing reengineering opportunities and expects to achieve $900 million of expense savings in 2013, related to repositioning actions, with full year expense savings of $1.2 billion beginning in 2014.
However, following the volatile 2012 results, Citigroup began 2013 on a positive note and continued its impressive results into the first two quarters, but disappointed in the third. Citigroup reported disappointing third-quarter 2013 earnings, with a negative surprise of about 3.85%. Earnings per share came in at $1.02 for the quarter, lagging the Zacks Consensus Estimate by 4 cents. Moreover, earnings were down 4% from the prior-year period on lower revenues.
Over the last 60 days, the Zacks Consensus Estimate for 2013 reduced 2.3% to $4.71 per share. The Zacks Consensus Estimate for 2014 has also decreased by 2.3% to $5.41 per share over the same time frame. With the Zacks Consensus Estimates for both 2013 and 2014 going down, Citigroup now has a Zacks Rank #3 (Hold).
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