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Stock Analyst Update

Citigroup Turns in an Excellent Fourth Quarter

We plan to raise our fair value estimate for the narrow-moat firm.


Narrow-moat rated Citigroup (C) reported solid fourth-quarter results, with a return on tangible common equity (ROTCE) of 12.4% during the quarter, pushing full-year results up to 12.1%, above the full-year 12% target. This was an exceptionally strong result, as it originally appeared it was going to be tough for the bank to meet its target for 2020. The bank reported net income of $5 billion, or $2.15 per share, on the back of $18.38 billion in revenue. Revenue increased 7% year over year while operating expenses saw a 6% increase.

Expenses grew due to higher compensation, premises, and technology costs, though these were partially offset by the wind-down of legacy assets as well as internal efficiency gains. Credit costs increased 15%, impacted by higher net credit losses in both segments. In spite of higher costs, earnings before taxes (EBT) grew 7%; higher EBT coupled with a lower effective tax rate helped boost net income by 18% for the quarter. Full-year 2019 net income grew 8%. Share repurchases have been a common theme among banks in 2019, and Citi was no exception. EPS grew 34% year over year as share buybacks have reduced common shares outstanding by 11%. Management gave updated guidance around its ROTCE target for 2020, reducing it to a range of 12%-13%. However, we had not been projecting much more ROTCE expansion in 2020, and with the bank coming in ahead of our expectations for 2019, we plan to raise our fair value estimate by several dollars as we incorporate these results into our projections. 

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Eric Compton does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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