Citi Expects Investment Banking Division Growth In FY18

Citi Expects Investment Banking Division Growth In FY18

Following a near 2,000 point fall in the Dow Jones in the past ten days, the stock of Citigroup Inc. (NYSE: C) fell from the 12-month high of $80.70 to a low of $70.99. At 1.28x the book value, Citigroup is one of the cheapest and quality banking stocks available for a grab. However, let us look at the recent developments related to Citigroup before deciding whether a long or short position is suitable at this point in time.

The New York-based banking giant reported 4Q17 net loss of $18.30 billion, or $7.15 per share, compared with a net income of $3.57 billion, or $1.14 per share in the prior-year period.

The 4Q17 results included a one time, non-cash charge of $22 billion, or $8.43 per share, related to the implementation of new tax rules in the US. Excluding charges, adjusted earnings of $1.28 per share for the fourth-quarter was higher than $1.14 per share posted in the prior-year period. The Wall Street analysts had estimated Citigroup to earn $1.19 per share in the quarter. During the recent quarter, Citigroup recorded revenues of $17.26 billion, up 1% from $17.01 billion in the corresponding quarter last year and greater than analysts’ expectation of $17.22 billion.

The bank recorded 20% y-o-y growth in investing banking revenues in 2017. In fiscal 2018, Citigroup anticipates the segment to perform still better due to an improvement in activity in the emerging markets.

In particular, Citigroup expects to record its best performance in a decade in the Middle East and Africa. In the Middle East, the growth is expected to be led by Saudi Arabia. Notably, the bank has returned back to the country after 13 years. Last April, the bank received its license to provide services related to investment banking, debt and equity capital markets to local and institutional clients in Saudi Arabia.

Citigroup also expects UAE, Nigeria, and Egypt to be the drivers of growth as bond sales, and mergers & acquisitions activity continue to pick-up in those regions. Hoping to reap big returns, the bank has been actively hiring in Saudi Arabia.

Based on the above mentioned developments, ValuEngine analysts had upgraded the stock from a “buy” rating to a “strong-buy” rating. Likewise, the stock of Citigroup was upgraded by Zacks Investment Research analysts from a “hold” rating to a “buy” rating, with a target price of $89. Therefore, based on the details mentioned above, a bullish reversal in the stock of Citigroup can be expected.

The price chart indicates strong support for the stock at 71.50. The Williams’ Percentage Range indicator is in the oversold region. Therefore, a strong uptrend in the stock price is possible.

Citigroup - Technical Analysis - 13th February 2018

While purchasing the stock is the easiest way to gain from the uptrend, better returns can be realized by trading a call option offered by a binary broker. However, we will enter a trade only if the binary broker offers an option contract with an expiry period of one week. Furthermore, the stock of Citigroup should be trading near $58 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.

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