Citigroup Inc (C) has become the star performer out of the Big Banks this year, rising more than 30% in 2019, compared to the KBW Bank Index’s (BKX) near 16% return and the broader S&P 500’s 18.3% gain through Tuesday close. The big question leading up to the Wall Street giant’s earnings report is whether the company’s mix of businesses will produce strong enough profits to please investors and keep the stock rising.
While Big Bank stocks have made a big comeback this year after getting pummeled in the final quarter of 2018, a recent spell of uncertainty in the market has caused a greater amount of turbulence. This comes as Citigroup is expected to post earnings in mid-October.
For the quarter ended September, analysts are expecting Citi to post earnings of $1.95 per share, compared to year-ago EPS at $1.73, per Yahoo Finance. Revenue is slated to come in at $18.51 billion, marking a 0.7% increase over the same quarter last year.
In the previous quarter posted July, Citigroup posted better-than-expected top and bottom line numbers, in which EPS jumped by 20% to $1.95. The outperformance was driven in part by the bank’s investment in Tradeweb, which hit the public market in April. The $350 million the bank made on that deal boosted EPS by $0.12.
Investors will be looking out for whether Citi keeps up its aggressive share buyback program. The Big Bank returns all of its earnings on average to investors in stock buybacks and dividends, per Barron’s. Citigroup’s total payout ratio was 103% in Q2.
Margins, Interest Rates
Another key point for investors will be bank margins in the current quarter, especially as declining bond yields threaten to pressure margins. More weight should be placed on margins especially after the Federal Reserve cut interest rates, and as more market watchers expect additional cuts this year.
Important for Citi this quarter will be whether the bank can offset weak corporate sentiment with a growing consumer business. In the latest quarter, results showed that U.S. consumers are going strong. Citigroup’s global consumer business saw revenues increase 4% year-over-year, and U.S. credit card revenue increased 7%. Corporate sentiment, particularly in Asia, has suffered due to trade tensions, with business lending in Asia down 7% over last year
Major potential headwinds for Citi and other financial institutions include global economic developments, such as any signs of decelerating economic growth, as well as rising geopolitical tensions and a trade war between the U.S. and China. Moving forward, risks to global growth will make Citi and its peers vulnerable to earnings swings.