Citi (C): Slowing Growth With Technical Upside (No Paywall)

By Yimin Xu. Citi is still in the early days of a new post-2008 cycle, but we have a trade idea.

DISCLAIMER: This note is intended for US recipients only and, in particular, is not directed at, nor intended to be relied upon by any UK recipients. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Cestrian Capital Research, Inc., its employees, agents or affiliates, including the author of this note, or related persons, may have a position in any stocks, security, or financial instrument referenced in this note. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice. Companies referenced in this note or their employees or affiliates may be customers of Cestrian Capital Research, Inc. Cestrian Capital Research, Inc. values both its independence and transparency and does not believe that this presents a material potential conflict of interest or impacts the content of its research or publications.

Hi friends,

It's been 16 years since the Great Financial Crisis, when the US Government bailed out the banks, the Fed unleashed truckloads of money through QE, and the capital requirements for banks became drastically stricter.

How are the biggest US banks doing today? Are there any opportunities?

Today, we are going to examine Citi’s latest Q3 earnings. We will go through the fundamental trends of Citi’s financials, its valuations, and its technical price action.

At the end of the article, I offer a trade idea in C as well as a summary stock rating.

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1. Citi’s Growth Has Flatlined

Citi’s quarterly Net Interest Income has first slowed, then steadily declined since June 2023.

The quarterly revenue however, is still above flat growth due to a rise in non-interest incomes (e.g. Investment Banking Fees and Sales & Trading).

Credit provisions are flat. A rise in credit provisions shows worsening credit qualities of the borrowers of Citi, which is an advanced indicator of a recessionary economy.

The Net Income margin has been steady in 2023.

EPS has decreased both QoQ and YoY, but dividends increased by $0.03 in Q3.

This means Earnings to Dividend ratio is also declining, although the dividend yield on the book value has stayed the same.

2. Detailed Financial Performance Table

While growth slowed, expenses in the past two quarters as a percentage of revenue are down from late 2023 - early 2024.

3. Valuation Appears Reasonable For Growth

Citi’s valuation is essentially a story of unexciting top-line growth meets meeting cheap top-line valuation.

NTM PE of 9x for a EPS growth of 21% in 2025 looks reasonably valued, with a PEG of just 0.44.

TTM Dividend yield on stock price is 3.5%. If you are looking for yields, BDCs or even Treasuries are better yielding.

4. Earnings Surprise

Earnings day tend to be fairly muted, with the stock generally moving within ±5% post earnings. There tends to be more negative reactions (12 out of 20 in past 5 years) than positives.

5. Some Banking Peers Look More Promising

A) Market Capitalisation vs Revenue

There is a pretty strong relationship between the market cap and revenue (R-squared as high as 0.92). It suggests that these banks are valued with a narrow multiples range.

B) Forward Price/ Sales vs Growth

On a forward basis, GS and MS appear better than JPM, WFC, HSBC. UBS still represents good value for growth.

C) Forward P/E vs Growth

We excluded SOFI as there are no reliable EPS estimates for it. In terms of P/E vs Growth, GS looks like a better deal than most, while UBS is growing fastest with a higher than average multiple too.

6. Technical Analysis Suggests Upside

C Monthly (https://www.tradingview.com/x/Su90wY8f/)

Citi crashed spectacularly in the Great Financial Crisis. It is actually still pretty far from its all time high.

C’s recovery since 2008 appears to be a leading diagonal structure, where waves (1) and (4) overlap, with a 3-3-3-3-3 overall structure. This suggests that we are in a larger degree wave circle-1 still, whose target should end between $96 and $120.

C Daily (https://www.tradingview.com/x/6NpImWzi/)

Zooming in, we are in wave C of (5), and likely in wave circle-c of it. Proportionally, wave circle-c = 1.236 of circle a, and wave C = 1-1.236 of wave A.

7. Trade Idea For The Patient

C Daily (https://www.tradingview.com/x/UQYofuYG/)

The short term price action is bullish, as the price has bounced off and now stands well above the VWAP (volume-weighted average price) of the 2023 low.

The wave circle-b appears to have completed at just shy of 50% retrace of wave circle-a.

The trade targets the wave circle-c of C of (5). We set the target at $100, even though the wave could stretch above it. This is because $100 is an important psychological level and still offers plenty of reward for the risk. The stop loss is set below the wave b low at $53, which is also below the VWAP-minus-5% level (red line).

A more conservative approach is to enter above the wave circle-a high at $68. It offers less potential return but removes more uncertainty around the price bullishness. Ultimately, it is up to each person’s own style and risk-tolerance.

C Trade Idea: Long

Entry: $61.8 (today’s price)

Target: $100 (62%)

Stop Loss: $53 (-14%)

Reward-risk Ratio: 4.4x

Note that it could take more than 12 months for the trade to complete, as wave circle-a took roughly 10 months.

8. Rating: Equal Weight

The Good:

Valuation is reasonable given the 2025 EPS growth estimate.

Price technicals suggest further upside to complete a larger degree wave circle-1 from the Financial Crisis low.

The Bad:

Top line growth is flat, with net interest income declining with higher base rates.

While the Fed has kicked off the rate cut cycle, there is still a lot of uncertainty regarding its pace as well as the odds of recession, which will affect credit provisions.