Citigroup

Citigroup Could Sell off Into the 50s

Citigroup Inc. (C) reports Q2 2021 earnings in Wednesday’s pre-market, with analysts looking for a profit of $1.91 per-share on $17.3 billion in revenue. If met, earnings-per-share (EPS) will mark a nearly 400% profit increase compared to the same quarter last year, which featured a temporary respite from the COVID-19 pandemic. The stock sold off about 9% in the week following April’s Q1 release, despite beating top and bottom line estimates.

Fails to Raise Dividend

Bank stocks took off in strong uptrends in the first quarter after bond yields escalated in reaction to inflationary data that would generate stronger industry profits. However, the bond tide has turned since April, lifting iShares 20+ Year Treasury Bond ETF to the highest high since February. Taken together with fears that COVID variants will weigh on worldwide economic growth into 2022, many investors have taken sector profits and moved to the sidelines.

The company fared poorly compared to rivals in the latest Fed Stress Test results released in June and was forced to raise its Stress Capital Buffer Requirement from 2.5% to 3%. It also had to forego a dividend increase, unlike most rivals, making shares less attractive. As a result, it’s no surprise that selling pressure has escalated in recent weeks, dropping the stock to a 4-month low while accumulation has slumped to an 8-month low.

Wall Street and Technical Outlook

Wall Street consensus is modestly bullish, with an ‘Overweight’ rating based upon 16 ‘Buy’, 1 ‘Overweight’, and 8 ‘Hold’ recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $66 to a Street-high $114 while the stock is set to open Monday’s session just $2 above the low target. This poor placement reflects a decline in bullishness about the trajectory of interest rates.

Citigroup rallied to a 10-year high near 80 in January 2018 and turned lower into year’s end. It failed a breakout in January 2020 and rolled over, dropping to a 7-year low in March. The subsequent uptick reversed three points below the prior high in June 2021, ahead of a decline that’s testing long-term support for the first time since November. Aggressive distribution in the last six weeks predicts that bears will eventually win this battle, dumping the stock into the 50s.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.