Citigroup Q2 preview: Where next for C stock?

When will Citigroup release Q2 earnings?

Citigroup will release second quarter earnings before US markets open on Friday July 15. The bank plans to hold a conference call on the same day at 1100 ET.

Citigroup Q2 earnings consensus

Wall Street believes Citigroup’s revenue will rise 5.8% in the second quarter to $18.5 billion, but forecast a 40.7% drop in adjusted EPS to $1.69 compared to last year.

Citigroup Q2 earnings preview

Citigroup reported lower revenue and earnings in the first quarter of 2022, but performed better than Wall Street anticipated after its huge sales and trading division benefited as the eruption of war in Ukraine injected volatility into the markets.

Markets have remained volatile and analysts believe fixed-income trading will show particular strength and deliver a 24% jump to its topline in the second quarter, while its smaller equities unit should have also benefited and post a milder 8% increase. Data from Bloomberg, which was compiled of analyst estimates, suggests trading revenue at the five largest Wall Street banks will jump 16% in the second quarter – signalling that Citigroup could outperform on this front.

Bigger questions remain over the rest of the business and, considering Citigroup’s global footprint, will provide a wider snapshot of how the global economic outlook is shaping up. Its investment banking arm is forecast to report a 35% drop in revenue as fees for advisory services and underwriting debt and equity all suffer compared to last year. Its US card business is expected to hold up given the financial strength of consumers, even if recession fears threaten to lead to a slowdown in spending.

One of the reasons earnings will suffer such a severe fall is the tough comparatives from the year before, when its bottom-line was bolstered by the release of reserves that had been put aside during the pandemic. With that in mind, Citigroup is expected to build its safety net by some $100 million in the second quarter compared to a $100 million release in the first as the economic outlook deteriorates.

Plus, Citigroup’s exposure to Russia has also weighed down earnings, although Citigroup has said losses from this should be limited to under $3 billion, having previously said it could have been as much as $5 billion. Investors can expect an update on the impact this week, including the sale of its consumer banking business in the country.

Citigroup was told to put more money aside to strengthen its capital buffer in the latest round of stress tests conducted by the Federal Reserve, although it was otherwise given the all clear that it is strong enough to survive an economic downturn.

‘We have capacity to maintain the current common dividend of $0.51 per share in a range of stress scenarios, including the one outlined in the FRB stress test. The combination of our earnings generation, divestitures, optimization efforts and management buffer - which was designed in part to temporarily address volatility - will be important tools as we manage toward our CET1 target over the coming quarters, Citigroup CEO Jane Fraser said.

Citigroup is focused on growing its CET1 ratio, which measures its ability to weather a period of financial distress, to the new 12% requirement this year from the 11.4% reported at the end of March. While Citigroup and the likes of JPMorgan have held their dividend flat, others like Goldman Sachs, Morgan Stanley and Wells Fargo all raised their payouts swiftly after being given the green light by the central bank. Citigroup has said it is still planning to return excess capital to shareholders, but buybacks may be held back in the near-term as it funnels more money to improve its buffer.

Where next for C stock?

Citigroup shares have plunged over 27% since the start of 2022, having slightly outperformed the S&P 500 bank index that has fallen 30%.

The stock has settled at $45.50, which has held as a firm floor for the stock during the past month but is still being tested and the stock has already dipped below this level in early trade today. The stock could unravel below $42 if it comes under further pressure and head toward the pandemic-induced lows seen in March 2020.

The stock has struggled to break above $49 over the last month and this is the first upside target to breach. This is in-line with the 50-day moving average. If recaptured, the stock can bring the 100-day moving average at $52 into play before the more significant level of support-turned resistance at $54 comes into play. Notably, the 27 brokers that cover the stock believe there is further potential upside with an average target price of $59.40, in-line with the 200-day moving average.

We have seen some divergence from the RSI over the past three months, with the indicator having found higher ground while the stock has sunk lower. Average trading volumes have also been on the slide lately. The 20-day average volume-at-time sits some 25% above the 10-day average, which in turn sits some 19% above the 5-day average.

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