Here's What The Buy Side Expects From Citigroup

Jul.11.14 | About: Citigroup Inc. (C)

Summary

Most banks are expected to report an earnings downturn this quarter.

This quarter the buy-side as represented by the Estimize.com community is expecting Citigroup to beat the Wall Street earnings consensus by close to 5%.

On Monday, we will see if Wells Fargo’s miss against the Estimize consensus was an isolated incident, or if more weakness from the banks can be expected going forward.

Citigroup Inc. (NYSE:C) is set to report FQ2 2014 earnings before the market opens on Monday, July 14th. Reports suggest that Citigroup is in talks with the Depart of Justice to finally settle a $7 billion lawsuit related to allegations that the bank sold subprime mortgages leading up to the financial crisis in 2008. While most companies in the S&P 500 are expected to have a strong earnings season, the financials are an exception. Most banks are expected to report an earnings downturn this quarter. Wall Street is forecasting that Citigroup will report EPS of $1.08, down 17c (14%) from the same quarter of last year. However, investors are less pessimistic than the sell side.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

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(Click Here to see Estimates and Interactive Features for Citigroup)

The current Wall Street consensus expectation is for Citigroup to report $1.08 EPS and $18.800B revenue, while the current Estimize.com consensus from 36 Buy Side and Independent contributing analysts is $1.13 EPS and $19.074B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Citigroup to beat the Wall Street earnings consensus by close to 5% while reporting 1% to 2% ahead of revenue estimates.

Over the previous 6 quarters, the consensus from Estimize.com has been more accurate than Wall Street in forecasting Citigroup’s EPS in each quarter and has been more accurate in predicting revenue 4 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non-professional investors, Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time.

More importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. Here we are seeing an average differential between the two groups’ expectations.

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The distribution of earnings estimates published by analysts on the Estimize.com platform range from 65c to $1.29 per share and from $18.000B to $20.230B in revenues. This quarter we’re seeing an unusually wide range of estimates on Citigroup compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wide range of earnings estimates signals less agreement in the market, which could mean greater volatility post earnings.

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Over the past 3 months, the Wall Street EPS consensuses declined from $1.25 to $1.08, while the Estimize consensus plunged from $1.33 to $1.13. Meanwhile, the Wall Street revenue forecast slowly decreased from $19.523B to $18.800B, while the Estimize consensus slipped from $21.300B to $19.074B. Timeliness is correlated with accuracy and downward analyst revisions going into an earnings report are often a bearish indicator.

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Among the analysts with at least 2 estimates scored on Citigroup, ZachLehner has been the most accurate with an average of 10.25 points per estimate. ZachLehner is a buy side equity research analyst who is currently ranked 6th overall among over 4,550 contributing analysts. ZachLehner will be featured in a conference call highlighting a few of the top performing Estimize analysts on Monday, July 21st to discuss earnings for the consumer discretionary sector.

Data from Estimize.com suggests that we may be in for the best earnings season since the fourth quarter of 2011. With that being said, no fireworks are expected from the banks. On Friday, Wells Fargo (NYSE:WFC) reported EPS of $1.01, coming in-line with Wall Street but missing the Estimize consensus by 4c per share. Wells Fargo reported a slip in mortgage revenues, which helped keep earnings lower than the Estimize community had forecast. On Monday, we will see if Wells Fargo’s miss against the Estimize consensus was an isolated incident, or if more weakness from the banks can be expected going forward.

Disclosure: None