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Citi's shares have experienced a surge, with a rise exceeding 40% so far in 202x.

Citigroup's shares (traded as NYSE: C) have seen a roughly 44% increase so far this year, outpacing the S&P 500 index's 27% growth during the same timeframe.

London's Canary Wharf Houses Citibank Branch
London's Canary Wharf Houses Citibank Branch

Citi's shares have experienced a surge, with a rise exceeding 40% so far in 202x.

Citigroup's (NYSE: C) share price has surged approximately 44% this year, contrasting the S&P 500's 27% growth during the same period. Even Wells Fargo (NYSE: WFC) has outpaced Citigroup with a 54% increase year-to-date. Let's delve into Citigroup's recent performance and future prospects.

Citigroup's third-quarter 2024 earnings surpassed analysts' forecasts. Although revenue climbed 1% to $20.3 billion compared to the previous year, net income decreased about 8% to $3.2 billion. The revenue growth was driven by the investment banking and wealth management sectors. However, higher credit costs and loan loss provisions negatively impacted earnings. Banking revenues increased 18% year-over-year, mainly due to a 31% surge in investment banking revenue, but net interest income dropped 3% year-over-year to $13.4 billion due to contracting margins. Equity revenues rose 32% year-over-year, while wealth management revenues increased 9% year-over-year.

Interestingly, Citigroup's stock has underperformed the market in each of the past three years. Returns were 1% in 2021, -22% in 2022, and 19% in 2023. Conversely, Trefis' High-Quality Portfolio, comprising 30 stocks, exhibited less volatility and outperformed the S&P 500 in each of those years. Why is this the case? The High-Quality Portfolio's stocks delivered better returns with less risk than the benchmark index, resulting in a smoother investment experience, as evidenced by the High-Quality Portfolio's performance metrics. Given the present unstable macroeconomic climate, with potential rate cuts and multiple conflicts, could Citigroup encounter similar challenges in 2021, 2022, and 2023, underperforming the S&P 500 over the next 12 months, or will it see a significant rise?

Moving forward, things might improve. The company's net interest income could improve due to the Federal Reserve's rate cuts, which began in September. The bank reported some stability in retail client loan delinquencies, with Citigroup stating it had allocated sufficient reserves to cover potential loan defaults or losses. Citigroup is also aiming to streamline its operations and resolve longstanding regulatory issues by improving its processes, including better governance and data management.

Comparison of CI Return with Enhanced Trefis Investment Portfolio

Additionally, the re-election of Donald Trump to the U.S. presidency is expected to foster the financial sector overall. Investors anticipate the Trump administration's deregulation focus to result in a more lenient approach to bank oversight compared to the Biden administration. This could lead to higher deal volumes, lending activity, and lower compliance costs, improving profitability. Trump has also advocated for tax cuts, which could positively affect banks' bottom lines, such as Citigroup. As Republicans, who generally support free markets, won control of both the Senate and the House of Representatives, lower interest rates and political certainty post-election could stimulate investment banking activity, with increased debt and equity issuances and M&A activities also set to increase. We believe Citigroup's share price is reasonably valued at its current level of around $72 per share, roughly corresponding to Trefis' estimates for Citigroup’s valuation.

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Despite Citigroup's third-quarter 2024 revenue growth driven by investment banking and wealth management sectors, the company's net income decreased, partly due to higher credit costs. This year-to-date, Citigroup's share price has underperformed the market, contrasting with the performance of Citigroup's High-Quality Portfolio, which outperformed the S&P 500 in the past three years.

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