Citigroup beats Q2 estimates, raises dividend by 100%

Investment banking and financial services corporation Citigroup Inc (NYSE: C) reported its fiscal 2017 second-quarter results that surpassed analysts’ expectations.

However, the investors have not rewarded the stock so far. The 3% y-o-y decline in the net income is one of the main reasons for the lack of buying support. However, we forecast a rally in the stock price due to reasons mentioned below.

The New York-based lender reported fiscal 2017 second-quarter revenues of $17.90 billion, up 2% from $17.548 billion in the similar period last year, and greater than consensus estimates of $17.367 billion.

Net income for the June quarter was $3.872 billion or $1.28 per share, down 3% from $3.998 billion or $1.24 per share in Q2 2016.The recent share buybacks enabled the bank to beat the EPS estimates of $1.21 per share.

Citi

Net interest revenue declined 1% y-o-y to $11.165 billion. Additionally, provisions for credit losses were $1.717 billion in 2Q17, up 22% from $1.409 billion the same period last year.

Segment wise, Global Consumer banking revenues in the recent quarter were $8.035 billion, up 5% from $7.674 billion in the similar period last year. Institutional Clients Group (ICG) revenues increased to $9.213 billion, up 6% on a y-o-y basis. However, Markets and Securities Services revenues, a division of the ICG, recorded 5% y-o-y decline in revenues to $4.388. Likewise, Fixed Income Markets revenue was $3.215 billion, down 5% from $3.432 billion last year. At the end of Q2 2017, the common equity tier 1 (CET1) ratio of the bank stood at 13%, from 12.53% in Q2 2016.

Total loans grew 2% y-o-y to $645 billion. Similarly, deposits also increased 2% y-o-y to $959 billion. Following the completion of 2017 annual stress test, the Federal Reserve granted permission to Citigroup to raise its annual dividend by 100% to $1.28 per share.

Citi also received approval to buy back $15.6 billion in stock over a period of one year. Citi announced that it returned $2.2 billion to shareholders, and generated $4.7 billion of regulatory capital in the second-quarter. Thus, Fed’s approval of the capital return plan, strong CET1 ratio, and impressive growth of Global Consumer Banking and Industrial Clients Group is expected to keep the Citi bullish.

The historic price chart reveals that the stock is moving along the ascending channel, as shown in the image below. The CCI indicator has started rising above -100 reading, thereby indicating an increase in buying momentum. So, the probability of an increase in the share price is higher.

To benefit from the probable appreciation of the stock, we are looking at the possibility of investing in a high or above option valid for seven trading days. We prefer to pick up the option contract from our binary broker when the stock trades near $67 in the NYSE.

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