Q2 Preview: No Surprises Expected for Citi (C) into Report, Most Analysts Bullish on Valuation

Citigroup (NYSE: C) is slumping ahead of its second-quarter earnings report, due out Friday morning before the market opens. Shares are down just over 1 percent Thursday afternoon. This is the first earnings report post the reverse stock split.

The Street expects earnings of 97 cents from Citi, on revenue of $19.94 billion. Earnings would be a significant increase from 10 cents per share last quarter, and 9 cents per share in the same period last year.

Citi dropped about 5.8 percent through the quarter and is down 6.2 percent since. Shares are down 11.6 percent since reporting Q1 earnings on April 18.

From a valuation standpoint, Citi trades at a forward P/E of 7.5 times FY12 EPS estimates, compared with 7.2 times for JPMorgan (NYSE: JPM), 6 times at Bank of America (NYSE: BAC), and 8.1 times for Wells Fargo (NYSE: WFC).

Streetinsider ratings data has 9 analysts with a Buy rating on Citi, 2 two at Hold, and none recommending to Sell. Bloomberg data shows an analyst price target range of $42 to $66, with an average of $55.70.

Analyst Comments
Goldman Sachs sees EPS of 94 cents per share. Goldman had some general comments on the banking sector the quarter: "We think 2Q results for bank stocks are likely to look similar to the 1Q tepid results; however, investor expectations are lower heading into this earnings season and bank stocks are 7% lower relative to 1Q. More importantly, with greater clarification of capital standards, we expect the focus to shift back to capital deployment and the ability to leverage balance sheets. Core banking results are likely to show continued weak trends in 2Q with H8 data suggesting tepid loan growth and margin pressure from declining loan yields."

Deutsche Bank sees Citi as "likely strong" into earnings with its reconciliation of Basel III. Deutsche takes a slightly different approach to Q1 than Goldman, noting "2Q results should generally be stronger than 1Q, which was weak for many banks given lower seasonal trends—such as mortgage, service charges, insurance, those related to card spend, loan volumes and two fewer days in the quarter (hurts fees and net interest income). Also, 1Q expenses included seasonally high incentive comp and FICA/payroll tax resets." Deutsche is looking for EPS of 87 cents per share out of Citi.

JPMorgan is most bullish of the three, seeing earnings of $1.07 per share. Commenting on the quarter for financials, which will translate for Citi: "We expect 2Q to be a moderate quarter from an earnings standpoint. We project modest pre-provision pretax profits (PPP) growth on a linked quarter basis, driven mainly by some seasonal decreases in expenses and modest increase in revenues. Earnings should also benefit from some continued improvement in credit costs, albeit at a slower rate. Capital markets-related fees, notably retail brokerage and trading, are likely to be the weaker areas in 2Q. Given the large increase in unrealized securities gains, we would not be surprised to see some of that monetized but it is not in our estimates."

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

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