(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Citigroup Inc's. (C) stock has fallen by more than 2% in 2018, trailing the S&P 500 rise of more than 8%. The company delivered better than expected earnings results in July, and shares have been rising since. Now the stock looks poised to increase by more than 10%, based on technical analysis. (For more, see also: Citigroup Stock: A Dividend Analysis.)
The company delivered strong second-quarter results in the middle of July, with earnings topping estimates by almost 5%. As a result, analysts are boosting their forecast for the balance of the year.
The stock is approaching a technical resistance around $73. Should the stock rise above that level of resistance it may lead to shares rising even further. The next level of technical resistance comes around $80.50, an increase of 11% from its current price around $72.50. (For more, see also: Citigroup Shares Poised to Plunge Further.)
The relative strength index (RSI) is also trending higher suggesting that bullish momentum is moving into the stock. The RSI started to trend higher in May, a bullish sign. Additionally, the RSI is currently near 60, and that is still well below an overbought reading of 70. It too suggests shares can continue to climb.
Since beating earnings estimates for the second quarter, analysts have upped their forecast for the balance of 2018. Analysts now see earnings climbing by more than 30% to $6.56 per share. That is up from previous estimates for growth of 28.7% to $6.48 per share.
Despite the better forecast for earnings, revenue forecasts are not as strong. Analysts have reduced their revenue forecast for the company since the end of June. Now forecasts are calling for revenue to climb by 3.7% to $74.1 billion. That is down from prior estimates calling for growth of more than 4% to $74.3 billion.
Buying Back Stock
One reason why analysts may be more bullish on earnings, more so than revenue is because the bank repurchased 33 million common shares during the second quarter. Additionally, the company announced on June 28, its plan to return more than $19 billion to shareholders through share repurchases and dividends. Reducing the number of shares helps to increase the earnings per share.
The better than expected results, the significant share repurchases, and dividend hikes may be what is driving shares of Citigroup higher. Now the stock looks primed to continue to climb back to its previous highs.
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.