Thematic evaluation
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Citigroup, Inc. (C)

August 21, 2024

Compared to: JPMorgan Chase & Co. (JPM) | Wells Fargo & Co. (WFC) | Financial Select Sector SPDR Fund (XLF)

Our reasoning

Citigroup appears moderately undervalued based on its below-average valuation multiples (P/E, EV/EBITDA, P/B) despite showing revenue growth and potential for improved profitability. The company's global presence, ongoing transformation initiatives, and growth opportunities in emerging markets and digital offerings provide upside potential that may not be fully reflected in the current stock price.

Key takeaways
  • Citigroup's revenue growth is driven by strength across its ICG and PBWM businesses, but this growth is being offset by reductions in Legacy Franchises.
  • Citigroup's profitability ratios are significantly lower than the industry average, indicating that the company is not as profitable as its peers.
  • Citigroup's liquidity ratios are significantly higher than the industry average, indicating a strong ability to meet short-term obligations.
  • Citigroup's solvency ratios are significantly higher than the industry average, indicating a high level of financial leverage. This high level of leverage could make the company more vulnerable to economic downturns or interest rate increases.
  • Citigroup's free cash flow margin is declining, indicating that the company is not generating enough cash to cover its investments and debt obligations.
  • Citigroup's future outlook is uncertain, as it faces a challenging macroeconomic environment, regulatory headwinds, and the normalization of the credit cycle.
  • Citigroup's valuation is currently below the industry average, reflecting its lower profitability and higher risk profile.
  • Citigroup's investment profile is characterized by its global reach, diverse business model, and strong liquidity. However, the company's high debt levels, declining profitability, and challenging operating environment present significant risks.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Citigroup, Inc. (Citi) is a global financial services company operating in over 95 countries. Its core business segments include Institutional Clients Group (ICG), Personal Banking and Wealth Management (PBWM), and Legacy Franchises. Citi provides a wide range of banking, investment, and financial products and services to consumers, corporations, governments, and institutions.
    • Citi's revenue is generated from various sources, including interest income, fees, and trading activities. The company's revenue breakdown reflects its diverse business model, with significant contributions from ICG, PBWM, and Legacy Franchises.
    • Citi targets a broad range of customers, including individuals, businesses, governments, and institutions. The company's target market is global, with a focus on key markets in North America, Europe, Asia, and Latin America.
    • For comparative analysis, we will be using the Financial Select Sector SPDR Fund (XLF) as a benchmark and Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. (JPM) as industry peers.

  2. Financial Performance:

    • Citigroup's revenue has been growing steadily in recent quarters, driven by strength in its ICG and PBWM businesses. However, this growth is being offset by reductions in Legacy Franchises.
    • The company's profitability ratios are significantly lower than the industry average, indicating that Citigroup is not as profitable as its peers.
    • Citigroup's return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC) are all below the industry average, suggesting that the company is not utilizing its assets as efficiently as its competitors.
    • Compared to its peers, Citigroup has exhibited mixed performance. While it has outperformed Wells Fargo in the 1-year period, it has underperformed both Wells Fargo and JPMorgan Chase in the 2-year and 3-year periods.

  3. Operational Efficiency:

    • Citigroup's balance sheet has shown a trend of increasing assets and liabilities in recent quarters.
    • The company's working capital management has been inconsistent, with fluctuations in cash flow from operations and changes in working capital.
    • Citigroup's cash flow from operations has been increasing, indicating strong cash generation from its core business. However, its capital expenditures are significantly higher than the industry average, suggesting a focus on growth and expansion.
    • Citigroup's free cash flow margin is declining, indicating that the company is not generating enough cash to cover its investments and debt obligations.
    • The company's high debt levels could limit its financial flexibility for future investments or economic downturns.
    • Citigroup's short-term and long-term liquidity ratios are significantly higher than the industry average, indicating a strong ability to meet short-term obligations.
    • Citigroup's debt-to-equity and leverage ratios are significantly higher than the industry average, indicating a high level of financial leverage. This high level of leverage could make the company more vulnerable to economic downturns or interest rate increases.

  4. Growth Opportunities:

    • Citigroup is pursuing market expansion through organic growth and strategic acquisitions. The company is focusing on expanding its presence in key markets, particularly in Asia and Latin America.
    • Citigroup has a robust R&D pipeline and is investing in new technologies to enhance its products and services. The company is also exploring opportunities in emerging areas, such as digital assets and fintech.
    • Citigroup is streamlining its organization and simplifying its operations to improve efficiency and agility. The company is also focusing on reducing stranded costs and improving its cost structure.
    • Citigroup's capital allocation strategy is focused on investing in growth opportunities, managing risk, and returning capital to shareholders. The company has a history of making strategic acquisitions and investments to enhance its business.

  5. Risks and Threats:

    • Citigroup faces a number of risks, including macroeconomic risks, regulatory risks, operational risks, and credit risks.
    • The company's high debt levels are a significant risk factor, as they could make the company more vulnerable to economic downturns or interest rate increases.
    • Citigroup's declining profitability and free cash flow margin are also concerns, as they suggest that the company is not generating enough profit or cash to cover its investments and debt obligations.
    • The company's ongoing transformation initiatives could introduce execution risks that could disrupt its operations and impact its performance.
    • Citigroup faces intense competition from other global financial institutions, as well as from emerging fintech companies.

  6. Valuation Analysis:

    • Citigroup's valuation metrics, such as its price-to-earnings (P/E) ratio and enterprise value-to-EBITDA (EV/EBITDA) ratio, are below the industry average. This suggests that the company is currently trading at a discount to its peers.
    • Compared to its peers, Citigroup's valuation is lower, reflecting its lower profitability and higher risk profile.
    • Potential catalysts for Citigroup's valuation include continued revenue growth, improved profitability, and progress on its transformation initiatives.

  7. Price Performance:

    • Citigroup's stock price has exhibited inconsistent performance relative to the Financial Select Sector SPDR Fund (XLF) over the past 60 days.
    • Citigroup's stock price has been more volatile than the benchmark, with larger drawdowns.
    • Compared to its peers, Citigroup's price performance has been mixed. While it has outperformed Wells Fargo in the 1-year period, it has underperformed both Wells Fargo and JPMorgan Chase in the 2-year and 3-year periods.

  8. Future Outlook:

    • Citigroup's management has expressed confidence in the company's ability to achieve its medium-term return on tangible common equity (RoTCE) target of 11% to 12%.
    • Analyst estimates for Citigroup's future earnings and revenue growth are generally positive, but there is a range of opinions on the company's prospects.
    • The company's future outlook is uncertain, as it faces a challenging macroeconomic environment, regulatory headwinds, and the normalization of the credit cycle.

  9. Summary:

    • Citigroup is a global financial services company with a diverse business model and a broad customer base. The company has been growing its revenue, but its profitability and operational efficiency remain below industry averages.
    • Citigroup faces a number of risks, including macroeconomic risks, regulatory risks, operational risks, and credit risks. The company's high debt levels and declining profitability are significant concerns.
    • Citigroup's valuation is currently below the industry average, reflecting its lower profitability and higher risk profile.
    • The company's future outlook is uncertain, but its management is confident in its ability to achieve its medium-term RoTCE target.
    • Citigroup's investment profile is characterized by its global reach, diverse business model, and strong liquidity. However, the company's high debt levels, declining profitability, and challenging operating environment present significant risks.
Peer fundamentals 
Fundamentals
Insights
  • Citigroup's revenue growth is driven by strength across its ICG and PBWM businesses, but this growth is being offset by reductions in Legacy Franchises.
  • Citigroup's profitability ratios are significantly lower than the industry average, indicating that the company is not as profitable as its peers.
  • Citigroup's liquidity ratios are significantly higher than the industry average, indicating a strong ability to meet short-term obligations.
  • Citigroup's solvency ratios are significantly higher than the industry average, indicating a high level of financial leverage.
  • Citigroup's efficiency ratios are below the industry average, indicating that the company is not utilizing its assets as efficiently as its peers.
  • Citigroup's free cash flow margin is declining, indicating that the company is not generating enough cash to cover its investments and debt obligations.
  • Citigroup's high debt levels are a significant risk factor, as they could make the company more vulnerable to economic downturns or interest rate increases.
  • Citigroup's future outlook is uncertain, as it faces a challenging macroeconomic environment, regulatory headwinds, and the normalization of the credit cycle.
Analysis
  • Revenue - Citigroup's revenue growth is driven by strength across its ICG and PBWM businesses, but this growth is being offset by reductions in Legacy Franchises. - The company's revenue growth is outpacing the industry average, but it is important to monitor the sustainability of this growth.
    • Profitability
      • Citigroup's profitability ratios are significantly lower than the industry average, indicating that the company is not as profitable as its peers.
      • The company's return on assets, return on equity, and return on invested capital are all below the industry average, suggesting that Citigroup is not utilizing its assets as efficiently as its competitors.
      • The net profit margin is also below the industry average, indicating that Citigroup is not generating as much profit per dollar of revenue as its peers.
    • Liquidity
      • Citigroup's liquidity ratios are significantly higher than the industry average, indicating a strong ability to meet short-term obligations.
      • The current ratio and quick ratio are both well above the industry average, suggesting that Citigroup has ample liquid assets to cover its short-term liabilities.
    • Solvency
      • Citigroup's solvency ratios are significantly higher than the industry average, indicating a high level of financial leverage.
      • The debt-to-equity ratio is significantly higher than the industry average, suggesting that Citigroup is relying heavily on debt financing.
      • This high level of leverage could make the company more vulnerable to economic downturns or interest rate increases.
    • Operational Efficiency
      • Citigroup's efficiency ratios are below the industry average, indicating that the company is not utilizing its assets as efficiently as its peers.
      • The return on assets and return on equity are both below the industry average, suggesting that Citigroup is not generating as much profit per dollar of assets or equity as its competitors.
    • Cash Flow Analysis
      • Citigroup's cash flow from operations has been increasing, indicating strong cash generation from its core business.
      • The company's capital expenditures are significantly higher than the industry average, suggesting a focus on growth and expansion.
      • Citigroup's free cash flow margin is declining, indicating that the company is not generating enough cash to cover its investments and debt obligations.
      • The company's high debt levels could limit its financial flexibility for future investments or economic downturns.
    • Risk Factors
      • Citigroup's high debt levels are a significant risk factor, as they could make the company more vulnerable to economic downturns or interest rate increases.
      • The company's declining profitability and free cash flow margin are also concerns, as they suggest that Citigroup is not generating enough profit or cash to cover its investments and debt obligations.
      • The company's ongoing transformation initiatives could introduce execution risks that could disrupt its operations and impact its performance.
    • Future Outlook
      • Citigroup's future outlook is uncertain, as it faces a challenging macroeconomic environment, regulatory headwinds, and the normalization of the credit cycle.
      • The company's high debt levels and declining profitability could limit its financial flexibility for future investments or acquisitions.
      • It is important to monitor Citigroup's progress on its consumer banking divestitures and its ability to effectively manage the wind-down of legacy businesses.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-08-09)
Financial Select Sector SPDR Fund (XLF)
  • Performance Comparison: Citigroup, Inc. (C) has exhibited inconsistent performance relative to the Financial Select Sector SPDR Fund (XLF) over the period. While it outperformed the benchmark in the 1-year and 6-month periods, it underperformed in the 3-year, 2-year, 3-month, 1-month, and 1-week periods. This suggests that Citigroup, Inc. (C) is a more volatile investment than the Financial Select Sector SPDR Fund (XLF).
  • Risk and Return Analysis: Citigroup, Inc. (C) has provided higher annualized returns than the Financial Select Sector SPDR Fund (XLF) in the 1-year period, but it has underperformed in the 2-year and 3-year periods. This suggests that Citigroup, Inc. (C) may be more susceptible to short-term market fluctuations. Additionally, Citigroup, Inc. (C) has exhibited higher annualized volatility than the Financial Select Sector SPDR Fund (XLF) over the period. This indicates that Citigroup, Inc. (C) is a riskier investment than the Financial Select Sector SPDR Fund (XLF). Furthermore, Citigroup, Inc. (C) has experienced larger maximum drawdowns than the Financial Select Sector SPDR Fund (XLF), further supporting the notion that it is a riskier investment.
  • Risk-Adjusted Performance: The Sharpe Ratio of the Financial Select Sector SPDR Fund (XLF) has consistently been higher than that of Citigroup, Inc. (C) over the period. This indicates that the Financial Select Sector SPDR Fund (XLF) has better risk-adjusted returns than Citigroup, Inc. (C). The beta values of both instruments have generally been below 1, suggesting that they are less risky than the overall market. However, Citigroup, Inc. (C) has exhibited higher beta values than the Financial Select Sector SPDR Fund (XLF) in recent quarters, suggesting that it is slightly more sensitive to market movements.
  • Overall Assessment: Citigroup, Inc. (C) has exhibited higher volatility and larger drawdowns than the Financial Select Sector SPDR Fund (XLF) over the period. While it has provided higher annualized returns in the 1-year period, it has underperformed in the 2-year and 3-year periods. The Financial Select Sector SPDR Fund (XLF) has consistently shown a higher Sharpe ratio than Citigroup, Inc. (C), indicating better risk-adjusted returns. The beta values suggest that both instruments are less risky than the overall market, but Citigroup, Inc. (C) has become more sensitive to market movements in recent quarters. Overall, the analysis suggests that the Financial Select Sector SPDR Fund (XLF) may be a more attractive investment than Citigroup, Inc. (C) for investors seeking a more stable and less risky investment.
Peers Price History(as of 2024-08-09)
JPMorgan Chase & Co. (JPM)Wells Fargo & Co. (WFC)
  • Performance Comparison: Citigroup (C) has exhibited a mixed performance history compared to its peers, Wells Fargo (WFC) and JPMorgan Chase (JPM). While it has outperformed WFC in the 1-year and 1-year annualized return periods, it has underperformed both peers in the 2-year, 3-year, and 3-year annualized return periods. This suggests that C's performance has been inconsistent relative to its peers.
  • Risk and Return Analysis: Citigroup (C) has generally provided lower annualized returns than JPMorgan Chase (JPM) but has been less volatile than Wells Fargo (WFC). The drawdown figures highlight that C has experienced the largest maximum drawdown among the three companies, indicating a higher risk profile.
  • Risk-Adjusted Performance: JPMorgan Chase (JPM) has consistently offered a better risk-adjusted return than Citigroup (C) and Wells Fargo (WFC), as evidenced by its higher Sharpe ratio. This suggests that JPM has been more efficient in generating returns relative to its risk.
  • Overall Assessment: Citigroup (C) has shown mixed performance and a higher risk profile compared to its peers. While it has exhibited lower volatility than WFC, its lower returns and larger maximum drawdown suggest a less favorable risk-reward profile. JPMorgan Chase (JPM) has consistently outperformed on a risk-adjusted basis, indicating a more attractive investment proposition. Investors should carefully consider the relative performance, risk, and risk-adjusted returns of these companies before making any investment decisions.
Peers Fundamentals(as of 2024-06-30)
JPMorgan Chase & Co. (JPM)Wells Fargo & Co. (WFC)

  1. Market Position and Size:

    • Citigroup, Inc. (C) is significantly smaller than its peers, JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), based on market capitalization.
    • Despite its smaller size, C generates a significant amount of revenue, only 33247.0 less than JPM's revenue of 75943.0, and 10941.0 greater than WFC's revenue of 31755.0.
    • However, C's net income is significantly lower than both JPM's net income of 18035.0 and WFC's net income of 4910.0, at 3185.0.

  2. Profitability and Efficiency:

    • C's profitability metrics are significantly lower than both its peers and the industry average.
    • C's Net Profit Margin of 7.46% is 8.0% lower than WFC's Net Profit Margin of 15.46% and 16.29% lower than JPM's Net Profit Margin of 23.75%.
    • C's return on assets, equity, and capital are significantly lower than its peers and the industry average.
    • This suggests that C is less efficient at converting revenue into profit and generating returns from its assets and capital compared to its peers and the industry as a whole.

  3. Financial Health and Stability:

    • C's liquidity metrics are strong, with a Current Ratio of 1.43, which is higher than its peers and the industry average.
    • However, C's solvency metrics are concerning, with a Total Debt to Total Equity Ratio of 301.08, significantly higher than its peers and the industry average.
    • This suggests that C has a strong ability to meet its short-term obligations, but its high debt levels could increase the risk of financial distress.

  4. Valuation and Market Perception:

    • C's valuation metrics are mixed compared to its peers and the industry average.
    • C's Enterprise Value To Sales and Price To Earnings are higher than its peers and the industry average, suggesting that the market values C more highly relative to its sales and earnings.
    • However, C's Price to Book Ratio and Price To Sales Ratio are lower than its peers and the industry average, suggesting that the market values C less highly relative to its book value and sales.

  5. Cash Flow and Capital Management:

    • C's cash flow metrics are significantly lower than its peers, considering their market caps.
    • C's Net Operating Cash Flow and Free Cash Flow are significantly lower than its peers, suggesting that C is less efficient at generating cash from its operations compared to its peers.
    • C's Total Capital Expenditure is greater than both WFC's and JPM's, suggesting that C is investing more in its business than its peers.

  6. Growth and Future Prospects:

    • C's growth in sales/revenue is significantly higher than its peers, suggesting that C is gaining market share.
    • However, C's growth in profitability and efficiency is significantly lower than its peers, suggesting that C is not as efficient at converting its sales growth into profits.
    • C's growth in sales/revenue has been consistently increasing over the 5-year period, while its growth in profitability and efficiency has been consistently decreasing.
    • This suggests that C's growth is not sustainable and may be driven by factors that are not sustainable in the long term.

  7. Potential for Investment:

    • C's strong revenue growth and liquidity are positive indicators, suggesting potential for future growth and stability.
    • However, its lower profitability, high debt levels, and declining efficiency raise concerns about its long-term sustainability.
    • C's valuation is relatively high compared to its peers, which may reflect investor optimism about its growth potential.
    • However, investors should carefully consider the risks associated with C's financial performance and its ability to improve its profitability and efficiency.

  8. Key Risks and Considerations:

    • C's high debt levels could increase the risk of financial distress.
    • C's declining profitability and efficiency may limit its ability to generate sustainable growth in the long term.
    • C's valuation is relatively high compared to its peers, which may make it vulnerable to a decline in investor sentiment.

  9. Overall Assessment:

    • Citigroup, Inc. (C) is a smaller player in the banking industry with a mixed financial profile.
    • While it demonstrates strong revenue growth and liquidity, its profitability and efficiency metrics lag behind its peers and industry averages.
    • C's high debt levels raise concerns about its financial stability, although its strong current ratio suggests sufficient liquidity to meet short-term obligations.
    • Overall, C's financial health is characterized by a combination of strengths and weaknesses, requiring careful consideration for investors.