Citigroup Posts Q4 Results: How Should You Approach the Stock Now?

Citigroup, Inc. C shares have gained 8.8% compared with the industry’s growth of 5.8% since the release of its fourth-quarter 2024 results. The company registered top and bottom-line growth in the reported quarter, mainly attributable to a rise in non-interest revenues (NIR), driven by strength in the investment banking (IB) business.Price Performance Image Source: Zacks Investment Research Citigroup’s close peers Bank of America BAC and Wells Fargo WFC registered strong growth in their quarterly non-interest income. BAC’s non-interest income increased 37% year over year to $10.99 billion, while WFC’s non-interest income grew 11% to $8.54 billion.Along with the strong quarterly results, Citigroup’s business-transforming initiatives focused on core operations are encouraging. Given the improving macroeconomic backdrop, the company provided an optimistic 2025 outlook. As such, many investors may be tempted to buy the stock. However, the pertinent question arises whether now is the right time to invest. It is important to delve into the details and analyze various factors at play to answer this.How Citigroup Fared in 2024?The company continues to see growth in fee income, with strong momentum across services, banking (especially IB) and wealth divisions.In 2024, overall fee revenues saw an uptick of 15%, driven by strength across its underlying fee-based business. IB revenues rose 38% year over year. The upside was driven by increases across debt and equity capital markets, and advisory.However, C’s net interest income (NII) fell 1% in 2024 due to high funding costs. Its net credit losses rose 7% from the 2023 level.What’s Ahead for Citigroup Stock?Business Restructuring Efforts: C’s CEO Jane Fraser is executing a sweeping overhaul of the bank to enhance its performance, reduce costs and simplify business operations.The transformation process included an organizational restructure that replaced the reportable segment with five new reportable operating segments. The reorganization trimmed management layers. In January 2024, C announced the plan to eliminate 20,000 jobs as part of its broad-scale restructuring effort over the next two years.The company remains on track to cut jobs. Last year, it reduced its headcount by roughly 10,000. Hence, in 2024, total expenses declined 4% on a year-over-year basis to $54 billion.For 2025, management expects expenses to be slightly lower than the 2024 reported level.2025 Expense Outlook Image Source: Citigroup Inc. Focus on Core Operation: Apart from the major organizational overhaul, Citigroup has been emphasizing growth in core businesses through streamlining operations internationally. In April 2021, the company announced its plan to exit the consumer banking business in 14 markets across Asia and the EMEA. Since then, the company exited consumer businesses in nine countries.In December 2024, Citigroup completed the separation of its institutional banking business in Mexico from its consumer, small and middle market businesses. In June 2024, the company sold its China-based onshore consumer wealth portfolio to HSBC China — a wholly-owned subsidiary of HSBC Holdings plc. The bank winded down its U.K. retail banking business, and expanded personal banking and wealth management businesses in the region.These moves are intended to free up capital that Citigroup can utilize to modernize the bank and invest in its high-returning businesses like IB and wealth management.Through such efforts, the company expects revenues to see a compounded annual growth rate (CAGR) of 4-5% by 2026-end and will further drive $2-2.5 billion of annualized run rate savings by 2026.Management expects the return on tangible common equity to be 10-11% by 2026.Return on Tangible Common Equity Image Source: Citigroup Inc. Fed Rate Cuts to Aid NII: The Federal Reserve’s monetary policy easing is likely to support Citigroup’s NII over the long term. The Fed has lowered the interest rates by 100 basis points in 2024. The fed fund rates are now 4.25-4.5%. The central bank hinted at two more rate cuts this year as inflation continues to be persistent. The rate cut is a positive development for Citigroup, which is under increasing funding cost pressure. While higher rates led to a jump in C’s NII, it increased funding costs, which dented the net interest margin (NIM) over the past couple of years.In 2024, NII (excluding Markets) declined 1% to $47.1 billion from the year-ago period, while NIM rose to 2.46% from 2.42%. With a decline in interest rates, funding costs will stabilize and decline eventually. This, thus, will support Citigroup’s NII and NIM growth. For 2025, management expects NII (excluding Markets) to be modestly up on a year-over-year basis.2025 NII Outlook Image Source: Citigroup Inc. Digital Initiative Drives Growth: The company’s initiative to accelerate its digital strategy looks encouraging. Recently, Citigroup began rolling out artificial intelligence (AI) tools for employees in eight countries. Around 140,000 employees will have access to the tools — Citi Assist and Citi Stylus. Both tools will be accessible to employees in the United States, Canada, Hungary, India, Ireland, Poland, Singapore and the U.K. They will be gradually expanded to other markets. Citigroup’s Payments Express continues to expand capabilities and geographic footprints, and is now accessible across 18 countries.In October 2024, C entered a multi-year agreement with Google Cloud, which is intended to support the company's digital strategy through cloud technology and AI. Through collaboration, Citigroup will transition different workloads and apps to Google Cloud's safe and scalable infrastructure.At the end of 2024, C’s active digital users increased 5% on a year-over-year basis. The company’s efforts to accelerate digital growth will enable it to enhance its top-line growth and improve operating efficiency.How to Play Citigroup Stock Now?As C enters 2025, the resurgence of the IB business and strong fee income growth, along with the Fed rate cuts, paint a favorable picture for the bank. Though the increased credit losses remain areas of concern, its emphasis on its core business growth by divesting non-core units provides a solid foundation for the future.The company’s strong 2025 outlook is indicative of its growth trajectory. Moreover, anticipated tax cuts, favorable regulations and expansionary fiscal measures under the new Trump administration will support Citigroup’s financials in the long run.C rewards its shareholders handsomely. In July 2024, the company hiked its quarterly dividend by 6% to 56 cents per share. It has been consistently paying quarterly cash dividends. The bank hiked dividends twice in the last five years with a dividend payout ratio of 38%.The company also has a share repurchase plan. Last year, the board of directors authorized a $20-billion share repurchase plan with no expiration date. For the first quarter of 2025, Citigroup expects to buy back $1.5 billion worth of shares after having repurchased $1 billion worth of shares in the fourth quarter of 2024.Considering these positive developments, the analysts seem bullish for C stock. Over the past seven days, the Zacks Consensus Estimate for the company’s earnings per share for 2025 and 2026 has moved upward. Estimate Revision TrendImage Source: Zacks Investment Research This upward adjustments also indicates an year-over-year growth for 2025 and 2026.Earnings Estimates Image Source: Zacks Investment Research Find the latest EPS estimates and surprises on Zacks Earnings Calendar.From a valuation standpoint, the company appears inexpensive relative to the industry. It is currently trading at a discount with a forward 12-month price-to-earnings (P/E) multiple of 10.54X, below the industry average of 14.34X. The stock is also significantly cheaper than its peer BAC and WFC’s current forward 12-month P/E of 12.59X and 13.09X, respectively.Price-to-Earnings F12M Image Source: Zacks Investment Research Hence, investors can consider parking their cash in the Citigroup stock at its current price levels for healthy returns. The stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Bank of America Corporation (BAC): Free Stock Analysis Report Wells Fargo & Company (WFC): Free Stock Analysis Report Citigroup Inc. (C): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks