(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Citigroup Inc. (C) shares may be poised to rebound by about 10% based on an analysis of the technical chart. Citigroup’s stock has risen by about 19% over the past year, while the S&P 500 has jumped by 14.50%. Despite the significant gains, the bank has fallen by over 9% since peaking in late January.
Citigroup had jumped by over 6% since May 8, when investment firm ValueAct took a $1.2 billion stake in the company. Shares have increased from roughly $69 to its current price around $72.80. The sharp rise helped the bank stock jump above a multimonth downtrend.
Bullish Technical Setup
The chart below shows that Citigroup broke out of a clear technical downtrend, an indication the shares may soar back to their previous highs around $80.50—about 10.5%, over the medium term. In another bullish sign, the stock put in a solid double bottom, a bullish reversal pattern, around $66.50. The pattern suggests the four-month-long decline may be in the past. The relative strength index (RSI) reached oversold conditions below 30 at the end of March and has been trending higher since that time, yet another bullish signal.
The long straddle options strategy using the expiration date on Sept. 21 suggests shares of Citigroup will rise or fall by about 9% from the $75 strike price. That cost of buying one put and call is about $6.90, placing the stock in a trading range of roughly $68 to $82. The number of calls outweighs the puts by a ratio of almost 2 to 1, with approximately 11,000 open call contracts to roughly 6,600 open put contracts.
Analysts have been slowly upping their 2018 earnings and revenue estimates. Over the past 30 days analysts have increased their earnings estimates by roughly 1.1% and now see the company earning $6.47 per share, a growth rate of 28.6% from a year ago. Meanwhile, revenue has also been tweaked higher by about 40 bps, to $74.31 billion, an increase of about 4% from a year ago. Of the 29 analysts covering the stock 66% rate shares a buy or outperform, while 31% rate shares a hold. Meanwhile, on average the analysts are looking for shares of Citigroup to rise by roughly 14.5% to nearly $83.30.
Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.