Citigroup: Q2 earnings

Summary of Citigroup's earnings for its second quarter, following which shares went up 3.3% in the pre-market (1:10pm).

 

Revenue

Earnings per share

Expected

$18.81 billion $1.10

Actual

$19.38 billion $1.24

 

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It’s a tricky task to announce a massive fine on the same day as an earnings release, but Citigroup managed it brilliantly. The shares are up over 3% today after earnings came in ahead of expectations.

The $7 billion fine was actually smaller than anticipated, providing a head start on the positive sentiment. Meanwhile adjusted income was $1.24 a share, above the forecast $1.05, although down on the $1.34 made in the same period last year.

Trading revenues were down, but not as badly as expected; capital markets revenues were reduced by 16% compared to last year, but this was better than the 20-25% forecast by the group's CFO.

Overall the outlook is a more positive one, and adds nicely to the picture presented by Alcoa which also beat expectations. As we look to Morgan Stanley and Goldman Sachs tomorrow, investors can afford to feel more confident.

Broker sentiment on Citigroup remains bullish, despite the steady decline of the shares this year. Of 29 brokers, the average rating is a ‘buy’, reflecting increased optimism about the outlook.

On a valuation basis, Citigroup is below its sector peers on price-earnings, at 10.15 versus 15.84 for the broader sector, while its return-on-equity has been 6.9% versus a more robust 10.4% for the sector as a whole.

On a technical level, we are yet again witnessing a failure to break through the 200-daily moving average, a recurring feature of price action in Citigroup in 2014. Any move higher would need to hold above this level and the $50 mark if we are to see an attempt to challenge the 2014 high of around $55.30.

On the downside, $46 appears to be a significant support zone, through which it may be difficult to break.

If earnings from other banks follow Citigroup’s lead in being better than forecast, the shares may finally have discovered the upward momentum they need.

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