Can Citigroup Perform Well After Recent News?

With shares of Citigroup (NYSE:C) trading around $49, is C an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Citigroup is a global diversified financial services holding company providing consumers, corporations, governments, and institutions with a broad range of financial products and services. It operates in two segments: Citicorp and Citi Holdings. The company's products and services include: consumer banking and credit, corporate and investment banking, securities brokerage, wealth management, and transaction services to consumers, corporations, governments, and institutions worldwide.

Citigroup shares are down in premarket trading as people familiar with the matter who spoke to the Financial Times said the company will report a sharp drop in trading revenue due to a slump in trading across the market. The FT pointed out that Citi's focus on interest rates and foreign exchange, which have been weak as of late, are reasons the company will likely report disappointing earnings. Citi, the country's third-largest bank by assets, is the most exposed of all U.S. banks to emerging markets, which investors have been shying away from and have seen falling currency rates. Citi declined to give the FT a comment.

T = Technicals on the Stock Chart Are Mixed

Citigroup stock has made significant progress in recent years. The stock is currently pulling-back from highs for the year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Citigroup is trading between its rising key averages, which signal neutral price action in the near-term.

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Citigroup options may help determine if investors are bullish, neutral, or bearish.

	Implied Volatility (IV)	30-Day IV Percentile	90-Day IV Percentile
Citigroup Options	28.67%	66%	65%

What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

	Put IV Skew	Call IV Skew
October Options	Flat	Average
November Options	Flat	Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Rising Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Citigroup’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Citigroup look like and more importantly, how did the markets like these numbers?

	2013 Q2	2013 Q1	2012 Q4	2012 Q3
Earnings Growth (Y-O-Y)	41.05%	29.47%	24.51%	-87.80%
Revenue Growth (Y-O-Y)	11.38%	5.59%	5.82%	-33.03%
Earnings Reaction	1.96%	0.20%	-2.91%	5.49%

Citigroup has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have mostly been satisfied with Citigroup’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Citigroup stock done relative to its peers, JPMorgan Chase (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), and sector?

	Citigroup	JPMorgan Chase	Bank of America	Wells Fargo	Sector
Year-to-Date Return	25.66%	17.76%	21.71%	23.42%	22.17%

Citigroup has been a relative performance leader, year-to-date.

Conclusion

Citigroup is a bellwether that offers essential financial products and services to consumers and companies worldwide. It is believed that the company will report a sharp drop in trading revenue due to a slump in trading across the market. The stock has made significant progress but is now trading slightly below highs for the year. Over the last four quarters, earnings and revenues have been rising which has mostly left investors satisfied with the company. Relative to its peers and sector, Citigroup has been a year-to-date performance leader. WAIT AND SEE what Citigroup does this coming quarter.