Trading Ideas For Citigroup (C)

Strong Quarterly Results

Citigroup (NYSE: C), 2010 Q3 Earnings were $.10 vs. $.07 consensus estimate. This is a 43% upside surprise beat. Q3 net income was $2.2 Billion dollars with revenues of $20.7 Billion dollars. Year-to-date, C is up over 41%, and holds a Tier 1 capital ratio of 10.3%. CEO Vikram Pandit announced the sale of CitiHoldings student loan in its entirety by year's end, as C is aggressively deleveraging its total asset pool of the Holdings business, which stood at 21% of Citigroup's assets at end of Q3.

Serving Up The Growth

Citgroup is lowering its net credit loss reserves (NCL) to utilize the capital in more lending, but it is well above the Basel 1, 2, and anticipated 3 requirement ratios. International revenue growth now consists of over 35% of increased revenue margins mainly concentrated in emerging markets in Latin American and Asia. Loan loss reserves (LLR) decreased by $2 Billion YTD, which is an increase of 2,000% showing market confidence and stability. NCL ratio is 5.52% and LLR ratio is 8.16%, respectfully. Lastly, C forecasts double-digit revenue and income growth in 2011 and intends to return equity to shareholders by 2012.

Risk Factors

Citigroup is aggressively increasing its market diversity across the globe. Over 50% of its revenue is now derived from international markets. In Q3 2010 this represents the 5th consecutive quarter of declining credit costs. Its consumer mortgage delinquency rate is 8.1% and is now stabilizing as the U.S. market is gradually decreasing. NCL for the year is $7.7 Billion, down 9% YTD as international markets' NCLs have basically flattened. The deleveraging of CitiHoldings division is substantially lowering Citicorp's expenses associated with NCLs.

In 2011, banking regulation standards will continue to change. Citigroup has been taking the necessary steps towards addressing the concerns of FDIC premium increases administered by Barney Frank, Congressman and Chairman of the House Financial Service Committee. Public sentiment of “Robo-Signing” did not occur within C, which created significant volatility for the financial sector. All loan consultants prudently processed loan by loan, which were all individually notarized, according to Citigroup's CFO.

Credit Ratings

Standard & Poor's: BBB+
Moody's: A-3
Reuters: Neutral

CEO Vikram Pandit stated that Citigroup (C) is well-positioned for growth in all international markets. It took early steps in the industry to gain a competitive advantage over its peers. Citigroup has over 50% of its assets now in international operations, with revenues gaining share from international exposure, compared to only 10-25% international exposure among its largest competitors. As we all know, emerging markets have recovered faster than North American markets and continue to do so.

The United States Treasury was selling its stake in Citigroup, which had an approximate 33% ownership in common stock that had been converted from a Preferred stock offering during the great recession from 2007 to early 2009. Morgan Stanley (NYSE: MS) was assigned the selling of the U.S. Treasury's stake at a moderate rate. MS sold up to 10% of Citigroup's daily volume pertaining to the Treasury's common stock. This created a short-term ceiling on the common because of supply side economics.

Going forward, as North American unemployment numbers decrease, it might spur stronger loan demand. Historical lows in the housing markets and an increasing population are combining to strengthen mortgage demands to a more stabilized Housing Starts Number. Also, rising trends in consumer confidence could raise loan demand. This might coincide with increases in Citigroup's earnings per share and potential dividend in 2012. Nevertheless, by implementing the discontinuation of CitiHoldings, the liabilities with NCLs are estimated to continue to decrease at an aggressive rate. S&P, Moody's, and Reuters would be more apt to raise Citigroup's credit rating and have lower costs associated with operating/investment cash flow activities.

A one year chart of Citigroup compared to the S&P 500 (Orange) and NASDAQ Bank Index (Blue).

6 MONTHS DAILY CHART:

200-Day Moving Average (Teal), 100-Day Moving Average (Yellow) 50-Day Moving Average (Purple)

This chart shows all three moving averages converging and starting to show an upward movement in early October (Bullish indicator). Citigroup is showing the following attributes: ($4.71, support), ($4.85 resistance), (Up/Down Volume Ratio 1.6) (50-MA $4.33, 100-MA $4.15, 200-MA $4.14), (Volatility 2.1%)

Outlook

Citigroup had a negative $.27 EPS in Q-3, 2009 which significantly impaired the one year performance and ratios when determining a technical analysis. A nine month average is more suitable in determining a correct analysis (2010's Q-1, Q-2, and Q-3). With developing this fundamental and technical analysis, Citigroup could potentially be trading for a deep discount at the moment.

Currently, the top 20 analysts that cover Citigroup formulated the following consensus for one-year guidance:

Mean Target: $5.37
Median Target: $5.50
High Target: $6.90
Low Target: $4.00

Q-4 Expected EPS: $0.08
Full Year 2011: $0.46

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