Citigroup up on Q1-2017 earnings beat, attractive valuations

The stock of Citigroup Inc (NYSE: C), which closed at $59.. yesterday, has so far gained nearly 3% this week. The main reason for the appreciation in the share price is the 17% y-o-y increase in the fiscal 2017 first-quarter earnings reported last week.

Due to large global exposure, the stock of Citigroup still remains undervalued. So, we believe that the stock should be bought on dips due to the facts presented underneath.

The bank’s Institutional Clients group revenue increased 16% y-o-y to $9.126 billion.

That enabled Citigroup to post fiscal 2017 first-quarter revenues of $18.12 billion, compared with $17.56 billion in the corresponding quarter last year.

Citi

But for the poor performance of Corporate division, which recorded a 40% y-o-y decline in revenues to $1.18 billion, the total revenues would have been much higher. Still, the bank was able to beat the Wall Street estimates of $17.44 billion.

The New York-based bank reported Q1-2017 income from continuing operations of $4.12 billion, up 17% from $3.51 billion in the same period last year. Excluding discontinued operations and non-controlling interest, the net income was $4.09 billion or $1.35 per share in the recent quarter. This compares with net earnings of $3.50 billion or $1.10 per share in the corresponding quarter of 2016.

In line with other banks, the bond and currency trading desk of Citigroup performed exceptionally. Investment banking division, a part of the Institutional Clients Group (ICG), recorded 39% y-o-y increase in revenues to $1.214 billion. Likewise, Fixed Income Markets division, which is also under ICG, reported revenues of $3.622 billion, up 19% on y-o-y basis.

The Common Equity Tier 1 ratio, which represents the ability of a bank to withstand shocks in the economy, rose to 12.8%. The return on assets increased to 0.91% in Q1 2017, from 0.79% in the similar period of 2016. At the end of first quarter, Citigroup’s SLR (Supplementary Leverage Ratio), another measure of capital adequacy, currently stands at a healthy 7.3%. Thus, considering the strong performance, we anticipate the stock to remain bullish.

The price chart indicates strong support for the stock at 58.40. Additionally, the stock of Citi is also trading above the 50-day moving average. The ascending money flow indicator reveals the flow of money into the stock. Thus, a trader can expect the uptrend to continue.

To gain from the uptrend, a high or above option can be bought when the stock trades near 59. In order to boost the chances of success in the trade, the trader should preferably choose a date around May 4th as the contract expiry date.

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