Where Citigroup Is Winning And Losing In 2013

Apr.16.13 | About: Citigroup Inc. (C)

Citigroup (NYSE:C) beat estimates on its top and bottom lines for Q1 2013. Revenue of $20.8 billion exceeded estimates by 3.2% and EPS of $1.29 exceeded estimates by 11.2%. The company's book value per share increased to $62.51, but the stock is trading about 27% below these levels. There are certain parts of the business that have seen increases for the quarter and others that have experienced declines.

The Winners

The Citicorp segment was a highlight in the quarter, which had a 6% increase in revenue to $19.6 billion. Citicorp net income increased 17% to $4.6 billion. Under this segment, consumer loans grew 1%, while corporate loans grew 9%.

Geographically, North America was the brightest region where revenues increased 20% and net income increased 51% for the Citicorp segment. Latin America had a 4% increase in revenue, but net income remained flat. Asia saw a 1% increase in revenue and net income. Europe, the Middle East, and Africa declined 3%. The gains in North America were quite impressive - a nice reflection of the recovery in the real-estate market.

The Securities and Banking segment was another bright spot in the first quarter. Total revenue increased 31% to nearly $7 billion, while net income increased 81% to $2.3 billion. The investment banking portion of the segment gained 22% to $1.06 billion. North America led all other regions in this segment with a 106% increase in revenue year-over-year.

The Losers

The Global Consumer Banking segment had revenues of $10 billion that were flat as compared to Q1 2012. Net income for the GCB segment decreased 11% year-over-year. North America experienced a 14% decline in net income. Asia had a 17% decline in net income, while Latin America increased 5%.

The Transaction Services segment revenues of $2.6 billion declined 4%, while net income of $764 million declined 14%. This segment was weighed down by spread compression. On the bright side, average trade loans increased 20% and average deposits increased 10%.

Citi Holdings did experience a 15% increase in revenue to $910 million. However, this segment is losing money. Although net income increased 22% year-over-year, the segment is still in the red with a loss of $794 million year-over-year. Expenses for Citi Holdings increased 23%, driven by higher legal costs.

The Takeaway

Citigroup continues to face a challenging business environment. Global spread compression and high legal and related costs have weighed the company down. However, the company's liquidity and capital positions remain strong.

The company is still undervalued as the stock is trading at 73% of its book value per share. This undervaluation is also evident with a forward PE ratio of 8.76 and a PEG of 0.81.

Citigroup is expected to grow earnings annually at 12% for the next five years. As the overall economy continues to heal along with the real estate market, the stock should continue to make higher gains for the long-term. I would estimate that the stock price should be over $80 per share in five years if the company can meet or exceed its earnings estimates for the majority of its quarters.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.