KBW Downgrades Citi On 'Meaningful Gap' In Outlook

Citigroup Inc C reported fourth-quarter results Tuesday that beat top- and bottom-line expectations, but the results led at least one Wall Street analyst to turn neutral on the bank stock. 

The Analyst

Keefe, Bruyette & Woods' Brian Kleinhanzl downgraded Citi's stock rating from Outperform to Market Perform with a price target lowered from $90 to $82.

The Thesis

Citi's Q4 report came in better than expected, but management's outlook fell short of expectations, Kleinhanzl said in the downgrade note. (See the analyst's track record here.) 

For example, revenue guidance was weaker than anticipated, which translates to higher efficiency ratio guidance came in above expectations, the analyst said. Citi will need to "pull harder" on expenses to hit the analyst's forecast, he said. Revenue growth from Citi's Cards segment could be negatively impacted from a deterioration in credit, Kleinhanzl said. 

Given the analyst's concerns, KBW moved its 2018 EPS estimate for Citi lower from $6.70 to $6.45 and 2019's numbers were lowered from $7.40 to $7.15 per share. A "meaningful gap" now exists between the 2019 estimates and management's target for 2020, and there is no compelling reason to believe the bank can bridge that gap, the analyst said. 

The bank's capital return and return improvement stories have now "largely played out," and an absence of any notable catalysts is prompting the analyst to move to the sidelines, he said. 

Price Action

Shares of Citigroup were trading lower by 0.5 percent at the time of publication. 

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