Option Trade 
Citigroup Inc. (NYSE:C) Calls
Monday, July 10, 2017

** OPTION TRADE: Buy the C Sept 15 2017 67.500 CALL at approximately $1.90. Place a pre-determined sell at $3.80.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Bank stocks have surged 32% since the election, thanks to tailwinds like rising interest rates and the potential for decreased regulation.

Also, bank stocks have experienced a fairly dramatic turnaround since the beginning of last month, with a number of major bank stocks trading at or near their highs for the year. The industry has easily outperformed the broader market since early June.

One such bank stock that has benefited is Citigroup Inc. (NYSE:C), which has shown a powerful pattern of optimism and momentum right before of earnings.

Citigroup Inc. is expected to report earnings on Friday July 14, before the market opens. The report will be for the fiscal Quarter ending Jun 2017. Based on 7 analysts' forecasts, the consensus EPS forecast for the quarter is $1.23. The reported EPS for the same quarter last year was $1.25.

Also, analysts expect that Citigroup will report full year sales of $17.49 billion for the current financial year, with estimates ranging from $70.33 billion to $72.83 billion. For the next year, analysts anticipate that the firm will report sales of $74.69 billion per share, with estimates ranging from $73.09 billion to $76.52 billion.

Citigroup’s shares have outperformed the categorized Major Regional Banks industry over the last six months, gaining +13.1% compared to +6.8%.

Analysts like the company's restructuring and streamlining efforts, strategic investments in core business and expense management. The recent Fed approval of the company's 2017 capital plan is also encouraging. Moreover, the passage of the Financial Choice Act will act as a tailwind for the company in coming quarters.

After the close on June 22, the Fed released the Dodd-Frank Act Stress Test results for 2017. Citigroup passed on all metrics with flying colors including leading the big banks with crucial capital ratios like CET1.

Citigroup is expected to post nearly 10% growth for the full year and over 13% next year, with the long-term average leveling out to just shy of double-digit growth.

Citigroup stock has gained 16% so far this year and has posted earnings beats in each of the past four quarters.

Citigroup’s 50-day moving average price is $62.66 and its 200-day moving average price is $60.18. Citigroup has a 12-month low of $41.62 and a 12-month high of $68.91. The firm has a market capitalization of $186.97 billion, a P/E ratio of 13.69 and a beta of 1.48.

Influencing Factors to Consider

One sign of good things to come, C stock — the bank’s provider of commercial and consumer banking products and services — raised its base lending rate to 4.25% from 4% last month.

Citigroup is probably one of the most undervalued bank stocks and, therefore, it has the best chance to appreciate from current levels. Its total assets are very large compared to its market price, and its price-to-book value back then was around 0.89.

Citi’s shares are in the process of consolidating, and expected to make another big move — probably towards $80 — by the end of 2017. And right now, Citigroup is trending in the direction.

While the momentum C is gaining is great to see, the best part is that there is still room for improvement. Citigroup’s recent rise has not been generated as a result of a fundamental shift in terms of gaining new customers by organizing better business opportunities; but instead, by the rise due to the Federal Reserve allowing the company to release more of their capital to its shareholders after passing the stress tests.

C doubled its dividend payout from 16 cents to 32 cents while announcing a buyback program of $15.6 billion on June 29, which is the largest in the company’s history. The market response has been strong, with the stock moving to long-term highs near $70 per share.

Outside of the U.S., C stock is dealing with some positive trends in part due to the European central banking forum held in Portugal from June 26-28 that was hosted by the European Central Bank (ECB).

Citigroup recently hired Alison Harding-Jones as the new head of EMEA M&A as well as the vice-chairman of EMEA corporate and investment banking.

Citigroup is also doing an excellent job of performing its due diligence for what might be ahead with Brexit. Citigroup is currently deciding to settle on a location to move services with the intent of keeping its clients.

Analysts and Hedge Funds Opinions

BidaskClub upgraded shares of Citigroup Inc. from a hold rating to a buy rating in a report released on Wednesday, June 14th.

Citigroup Inc.‘s stock had its “hold” rating restated by analysts at Jefferies Group LLC in a research note issued on Friday. They currently have a $68.00 price target on the financial services provider’s stock. Jefferies Group LLC’s price objective suggests a potential upside of 0.13% from the stock’s previous close.

Several other analysts have also recently commented on the company…..

  • Vetr upgraded Citigroup from a “buy” rating to a “strong-buy” rating and set a $76.22 price target for the company in a report on Thursday.
  •  Zacks Investment Research upgraded Citigroup from a “sell” rating to a “hold” rating in a report on Friday.
  • BMO Capital Markets reiterated a “buy” rating and issued a $64.00 price target on shares of Citigroup in a report on Thursday, June 1st.
  • Rafferty Capital Markets restated a buy rating and issued a $66.00 price objective on shares of Citigroup in a report on Monday, April 3rd.
  • Nomura reiterated a buy rating and set a $69.00 price target on shares of Citigroup in a report on Monday, April 17th.
  •  Jefferies Group LLC reiterated a hold rating and set a $68.00 price target on shares of Citigroup in a report on Monday, May 15th.
  • Finally, Keefe, Bruyette & Woods upgraded shares of Citigroup from a market perform rating to an outperform rating and upped their price target for the company from $53.00 to $69.00 in a report on Wednesday, April 5th.

Three research analysts have rated the stock with a sell rating, seven have issued a hold rating, eighteen have issued a buy rating and one has given a strong buy rating to the company. The stock currently has an average rating of Buy and a consensus target price of $64.91.

Several institutional investors have recently made changes to their positions in the stock…..

  • BlackRock Inc. raised its position in Citigroup by 2,718.7% in the first quarter. BlackRock Inc. now owns 196,415,461 shares of the financial services provider’s stock worth $11,749,573,000 after buying an additional 189,447,104 shares during the period.
  • Vanguard Group Inc. increased its stake in shares of Citigroup by 2.5% in the first quarter. Vanguard Group Inc. now owns 183,198,941 shares of the financial services provider’s stock worth $10,958,960,000 after buying an additional 4,391,347 shares in the last quarter.
  •  State Street Corp increased its stake in shares of Citigroup by 7.7% in the fourth quarter. State Street Corp now owns 133,941,548 shares of the financial services provider’s stock worth $7,960,137,000 after buying an additional 9,581,819 shares in the last quarter.
  • FMR LLC increased its stake in shares of Citigroup by 18.2% in the first quarter. FMR LLC now owns 105,742,815 shares of the financial services provider’s stock worth $6,325,535,000 after buying an additional 16,257,931 shares in the last quarter.
  • Finally, Bank of New York Mellon Corp increased its stake in shares of Citigroup by 31.3% in the first quarter. Bank of New York Mellon Corp now owns 43,167,279 shares of the financial services provider’s stock worth $2,582,269,000 after buying an additional 10,294,403 shares in the last quarter.

Harvey’s Options Volatility Indicator

Conclusion

Bulls remain in charge with respect to Citigroup stock. Markets have pushed forcefully through prior double-top resistance at $62.20, and the bias remains positive.

The fact that Citigroup is in a position to double its quarterly dividend is clearly going to be something that continues to attract the attention of the investment markets. From a comparative standpoint, Citigroup still has one of the most attractive valuations in the banking sector with the company trading at a discount of more than 10%.

The share buybacks suggest the potential for such a strong strategy, as Citigroup will be adding $1 in book value for every 90 cents paid through buybacks. This will go far in reversing the massive problems that were encountered during the global financial crisis.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the C Sept 15 2017 67.500 CALL at approximately $1.90. Place a pre-determined sell at $3.80.

Note: No protective stop losses added -- but if you wish to do so make it $0.75.

 

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Options traders win because they are successful.

 




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