Tuesday, December 12, 2023

Citigroup (C) Q4 2022 Earnings: What to Expect

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Commercial bank stocks such a Citigroup (C) did not fare as well as investors expected in 2022, particularly amid a period of rising interest rates. Banks often benefit from increasing interest rates which increases the net interest margins and their overall profits. However, that was not the case for Citigroup, which suffered a near 30% decline in its stock during 2022, underperforming its bank peers.

But is now a good time to bet on an outperformance? We will find out when the bank reports fourth quarter fiscal 2022 earnings results before the opening bell Friday. Citigroup has been pressured by several factors in 2022. Aside from fears of a global recession, the bank was seemingly punished for its fundamentals, including suspending its shares buyback program due to an increase of 1.5% in its capital requirements. Essentially, Citi’s stress, or its capital position, didn’t allow it to return capital to shareholders.

In the most recent quarter, the bank recorded a loan loss provision of $1.33 billion. For some context, this was higher by more than 50% (on average) than the reported loan loss provisions in the first half of 2022. The stock was punished for this, even though the bank reported a net interest income of roughly $12.6 billion, which rose 15% year over year. Heading into the fourth quarter, investors will be looking to see how the bank continues to improve in this area where it still has tons of ground to make up when compared to its peers.

For the three months that ended December, analysts expect the New York-based bank to earn $1.22 per share on revenue of $17.88 billion. This compares to the year-ago quarter when earning were $1.46 per share on revenue of $17.02 billion. For the full year, earnings are projected to be $7.05 per share, down from $10.14 per share a year ago, while full-year revenue of $75.14 billion would rise 4.5% year over year.

While concerns remain about global growth, which could impact Citigroup given the bank’s global reach, the management has reduced the bank’s high-risk and illiquid assets. The bank has been working to strategically shift its business and exiting consumer banking operations in certain regions. The goal is to realign Citi’s structure to focus on areas such as Personal Banking, Wealth Management, and Legacy Franchises segments.

These moves have not only revived revenue and the bank’s return on equity, they have also simplified the business model. This was evidenced with a solid top and bottom line beat in the third quarter when the bank posted better-than expected revenue of $18.5 billion, which beat Wall Street consensus estimates of $18.3 billion. The Q3 adjusted EPS of $1.50 was also higher than the $1.45 consensus estimate, though it fell from $2.19 in Q2. Just as impressive, the bank posted a net interest income of 17 cents per share, highlighting the benefits of higher rates.

But it wasn’t all good news. Operating expenses during the quarter came to $12.7 billion, rising 3% sequentially and 8% year over year. The bank will need to get that under control to surpass EPS and net interest income estimates. However, with interest rates steadily rising, Citigroup’s net interest income will continue to benefit from sustained growth in loans and deposits.

With the stock at $47, trading 30% below its 52-week high of $69, the bank currently offers plenty of appeal, while also trading at roughly 75% of its tangible book value. That combined with an attractive dividend yield of 4.36%, along with a potential resuming of the share buyback makes Citi a stock to own in 2023.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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