Citigroup (C) sustained a solid earnings day gain on Monday, overcoming concern on the initial mixed earnings print on Monday morning.
Shares of the big bank rose 3.95% on the day's trading to $58.93 per share, bolstered by positive management comments and an increased focus on shareholder returns in 2019. The company's share price, which remains below tangible book value, could present a profitable opportunity moving forward in 2019.
"This is one of the cheapest stocks in the S&P," Jim Cramer commented on the floor of the New York Stock Exchange on Monday morning. "This is a company you want to buy, not sell."
The Action Alerts PLUS team, which holds the stock in Jim Cramer's charitable trust, noted that the market's reaction that sent the stock downward in pre-market hours was unwarranted and welcomed the recovery throughout the trading day.
"We believe this was another solid quarter for the company because the trading downside should have been well reflected in the stock and there were no major problems disclosed that would otherwise justify a valuation below tangible book," the AAP team wrote. "After an initial down open, we are seeing the market better understand this as shares have since pushed higher."
The team reiterated their "One" rating, which denotes a stock the team would buy right now, adding that the stock's 3% dividend yield serves to further protect shareholders into possible market turbulence in 2019.
Even amidst its rise after the open, the stock remains at a discount to its tangible book value of $63.80 per share.
The stock's still substantial discount was bolstered by a bullish outlook offered by Citi executives..
"We have seen some improvement in trading conditions with volatility moderating and both equity prices and yields showing signs of stabilization early in January," Citi CFO John Gerspach told analysts on the company's earnings call.
On that basis the company indicated it would continue to buy back stock in big amounts.
The reduction in expenses also help the company focus on returning capital to shareholders, a major mandate for the year as management contends with activists investors.
"During the year, we returned $18.4 billion in capital to our shareholders, buybacks of common stock reduced the shares outstanding by over 200 million shares from a year ago or 8%, and our tangible book value per share increased by 6%," CFO John Gerspach told analysts during the earnings call. "Based on our 2018 CCAR capital plan, we expect to return an additional $9.8 billion of capital in the first half of 2019."
The return to shareholders is set to stay as a top priority given the remaining pressure from activist investor ValueAct, which has only intensified to kick off 2019.
Bouncing the Banks
The brighter forecast and big bet on itself from Citi abetted a stock surge that was been more than stock specific.
The comments on normalization has buoyed Financial Services Sector ETF (XLF) and other banking stocks like JPMorgan (JPM) , Wells Fargo (WFC) , Goldman Sachs (GS) , and Bank of America (BAC) ahead of their own earnings releases later this week.
The idea of both equity and bond stabilization, after a December that downed many financials dependent on bond trading and lending, is certainly helping the bullish case for the banking sector's big week.
"We don't think the boogeyman is coming for any of the largest banks," Wells Fargo analyst Mike Mayo told CNBC on Monday. "Put a blindfold on and buy some of the largest banks like Citigroup, Bank of America, JPMorgan, Morgan Stanley (MS) , and some of the others out there. We think they all outperform this year."
To be sure, Mayo leaves out Goldman Sachs, as the boogeyman of the 1MDB scandal may be the one scary specter awaiting banking sector bettors.
If the environment does indeed brighten and there is no boogeyman in sight for the rest, there might be few better times to buy the stocks at still relatively depressed levels and ahead of what could be better than expected earnings releases.
The follow through to the rest of the sector will certainly be one to watch this week.
Hold Your Horses
To be sure, the banks bottom-of-sector status is rationally raising red flags with some."Despite the action today, there may be some history working against the Citi bulls over the next three weeks. Over the past FOUR years, the stock has reversed the open/first-day move every single report," Real Money contributor Tim Collins commented. "In fact, if you faded the first day open and close and held the trade for 21 calendar days, you would have made a profit seventeen times in a row."
He advised that investors hold off until the stock settles and gives a more clear trajectory for the year, as its one-day moves have oft been illusory.
Nonetheless, shares remain positive 30 minutes after market close as many financial sector stock pickers set their sights on JPMorgan and Wells Fargo ahead of their earnings on Tuesday morning.
