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Earnings: Can C Beat the Street’s Forecast for 4 Straight Quarters?

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April 14, 2016
citibank earnings preview

Citigroup (C) is next in line in the banking sector’s Q1 earnings parade when it will report ahead of Friday’s opening bell. Its results are forecast to fall compared with the year-ago period, but investors may be waiting for another beat-the-Street surprise that C has provided the last four straight quarters.

Whether C can deliver is still an open question, but if the stock’s recent run-up is any indication, investors appear to be supporting it. Along with other sector big-bank hitters, C has been trading to the upside all week.

On Wednesday, the stock jumped 5.6% to advance 28% since hitting a three-plus year low in early February. Most banks rode the stock-market rally this week, with the sector gaining more momentum after JPMorgan (JPM) turned in better-than-expected results early Tuesday and offered hope for coming quarters. The banking sector led Wednesday’s triple-digit gains on the Dow Jones Industrials (DJIA).

Riding a Raft on Rough Waters

There’s no getting around the rough period most banks, including C, have had amid a raft of macro- and microeconomic woes. Low interest rates, of course, can slam margins and the disappearing initial public offerings market could impair investment-banking results, which the financial institution warned investors of a month ago.

Analysts reporting to Thomson Reuter’s are anticipating a per-share profit of $1.03 on top line sales of $17.46 billion. That’s significantly below the year-ago levels of $1.51 a share on revenues of $19.81 million.

What the Market Says

Short-term options traders have priced in a potential 3¼% share price move in either direction around the earnings release, according to the Market Maker Move indicator on the thinkorswim® platform from TD Ameritrade.

In recent sessions, we’ve seen some big spread-trading activity in the call options with large numbers of buyers and sellers clustering around the May 42½-strike calls and May 45-strike calls, respectively. Going into earnings, the April weekly 45-strike calls and April 44-strike puts are seeing lots of activity as well.

Implied volatility is at the 32nd percentile—similar to what we’ve seen in other bank stocks so far. (Please remember past performance is no guarantee of future results.)

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation, to sell the underlying security at a predetermined price over a set period of time.

citibank earnings chart

FIGURE 1: BIG BOUNCE FOR C.

Shares jumped 5.6% this week, accounting for a 28% advance since hitting a three-year low in early February. Chart source: thinkorswim® by TD Ameritrade.  Data source: Standard & Poor's. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

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