Citigroup Inc. (C - Get Rating) is a renowned global financial services company with approximately 200 million customer accounts spread across 160 countries. The bank operates in two segments: Global Consumer Banking; and Institutional Clients group. 

It has an ISS Governance QualityScore of 2, indicating relatively low governance risk.

However, C has consistently underperformed its peers. The stock has gained 1% in price over the past year. This compares to the iShares Global Financials ETF’s (IXG) 24.9% returns over this period.

Here is what could shape C’s performance in the near term:

Business Restructuration

In September 2020, Jane Fraser announced her plans to restructure Citigroup’s operations to boost its profit margins and share price performance following her appointment as CEO. Under her leadership, C is poised to exit non-core businesses that include consumer franchises in 13 markets in Asia and EMEA regions.

Earlier this month, Fraser announced C’s plans to spin off or sell its consumer banking business in Mexico as part of its “strategy refresh.” This should allow the bank to optimize its resources aligned with its core strengths and competitive advantages. However, the bank plans to retain its institutional clients’ business in the country.

Also, C sold its consumer bank franchise in the Philippines to Union Bank of Philippines last December. That month, the bank also sold its Citi International Financial Services, LLC (CIFS) and Citi Asesores de Inversion Uruguay S.A. (Citi Asesores) businesses to Miami-based independent broker-dealer Insigneo.

Mixed Growth Story

C’s revenues have increased at a 4.5% CAGR over the past three years and at a 3.3% CAGR over the past five years. However, the company’s EBITDA has declined at a 6.6% rate per annum over the past three years and at a 1.9% rate per annum over the past five years. Its total assets have declined at a 3.2% rate per annum over the past five years. Nonetheless, C’s net income and EPS have risen  at CAGRs of 9.5% and 17.9%, respectively, over the past five years.

Lower-Than-Industry Valuation

In terms of forward non-GAAP P/E, C is currently trading at 6.36x, which is 45.2% lower than the 11.61x industry average. The stock’s 1.88 forward Price/Sales multiple is 47.4% lower than the 3.58 industry average.

Furthermore, C’s 0.41 forward non-GAAP PEG ratio is 58.5% lower than the 0.98 industry average. And its 0.72 forward Price/Book multiple is 45.3% lower than the 1.32 industry average.

Bleak Growth Prospects

The Street expects C’s revenues to rise 2.1% in the about-to-be-reported quarter (ended December 2021) and 1% in fiscal 2022. However, the company’s revenues are expected to decline 5.3% in the current quarter and 4.6% in fiscal 2021.

Analysts expect C’s EPS to decline 32.7% in its fiscal 2021 fourth quarter, 41.2% in the current quarter, and 22% in fiscal 2022.

POWR Ratings Reflect Uncertainty

Citigroup has an overall C rating, which indicates a Neutral rating in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a C grade for Stability, Momentum, and Quality. Its relatively high 1.79 beta is in sync with the Stability grade. In addition, C is currently trading above its 50-day moving average of $64.25 but below its 200-day moving average of $69.95, justifying the Momentum grade. Furthermore, its 12.17% trailing-12-month ROE is 4.5% lower than the 12.75% industry average, which accounts for the Quality grade.

Of the 10 stocks in the C-rated Money Center Banks industry, Citigroup is ranked #6.

Beyond what I have stated above, view Citigroup ratings for Growth, Sentiment, and Value here.

Bottom Line

C is expected to benefit from the Fed’s hawkish tilt because an increase in benchmark interest rates would boost the bank’s profit margins. However, C’s bottom line is expected to take a hit in the short term amid its ongoing strategic restructuring efforts. Thus, we think investors should wait until C’s operations stabilize before investing in the stock.

How Does Citigroup Inc. (C) Stack Up Against its Peers?

While Citigroup has a C rating in our proprietary rating system, one might want to consider looking at its industry peer Wells Fargo & Company (WFC - Get Rating), which has a B (Buy) rating.

C shares were trading at $67.13 per share on Wednesday morning, up $0.02 (+0.03%). Year-to-date, C has gained 11.16%, versus a -1.09% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...

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