Next week, earnings season kicks off with financial sector stocks announcing their fourth-quarter results. The industry has been weighed down by the Fed’s easing policies, but many believe that bank stocks will outperform in 2020. Citigroup (NYSE:C) is no exception; most analysts are bullish on the stock, with 84% of those covering Citigroup stock giving it a “buy” or an “overweight” rating.
Citigroup stock was a great performer in 2019, delivering gains of more than 50% over the course of the year. But C stock can climb further. While the shares may not rise as much in 2020 as they did last year, Citigroup stock looks like it could be a winner again this year.
Citigroup stock does pose some risks. Deutsche Bank analyst Matt O’Connor downgraded C stock to “hold” from “buy“ earlier this month. O’Connor noted that macroeconomic conditions are likely to weigh on the bank’s revenue growth. He pointed to Citigroup’s global footprint as a reason to exercise caution, saying that a deteriorating global economy would impact C stock more than some of its peers.
However, others, like Morningstar’s Eric Compton, say Citigroup’s widespread global presence is an asset, as the firm will be exposed to growth in Asia, Latin America and other emerging markets. That, he says, will give Citi an advantage over its competitors who could struggle with decreasing loan demand at home.
Analysts, on average, are expecting Citigroup to post earnings per share of $1.85 on revenue of $17.8 billion. If the firm meets expectations, its Q4 revenue will have increased versus Q3 , when it posted year-over-year top-line growth of just 1%.
All eyes will be on the firm’s lending business, which struggled in Q3. Its Q3 net interest income came in at $11.64 billion, versus analysts’ average estimate of $12.15 billion. During the Q3 earnings call, management guided for a net interest revenue increase of just 2%-3%, also lower than had been expected.
Citi isn’t alone in this challenge, though. Its peers like JPMorgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC) also cut their Q4 net interest revenue guidance due to the lower interest rate environment.
After cutting rates three consecutive times in 2019, the Fed looks set to keep them constant this year, so investors will be looking for Citi’s results to improve in 2020.
Investors will also pay close attention to Citigroup’s branded-cards revenue, which rose by 11% YoY in Q3. The holiday quarter is an important tool for measuring consumer confidence, and details regarding consumer spending from the financial sector will provide indications of retailers’ performance during their extremely important holiday season.
Citigroup stock is certainly worth considering ahead of its Q4 earnings. C stock trades at a discount to most of its peers, and its potential growth in 2020 makes the stock’s potential reward attractive.
The firm’s impressive 2019 made Citigroup stock more expensive, but compared to the rest of its competitors, C still has a relatively low valuation. C stock trades at just 9.5 times its expected earnings, compared to the industry average of 14.
The firm recently overhauled its top management, a move that initially scared investors but appears to be paying off. Under its new leadership team, Citigroup has been able to follow through on its restructuring and cost-cutting initiatives. Now the bank can refocus on offense with a leaner, more efficient organization.
Although 2020 got off to a rocky start as geopolitical tensions weighed on markets, a sense of calm seems to have returned to the markets in recent days
But U.S. equities are sporting inflated valuations that make it difficult to pick a winner. Not only do bank stocks look like a great place to get more bang for your buck, but Citigroup stock could be one of the best value picks of the bunch.
While investors can’t always rely on analysts’ recommendations to make smart stock picks, I think the 22 experts who are recommending C stock are probably right. When it comes to bank stocks, Citigroup looks like one of the best plays right now.