July 16, 2012
Banking giant Citigroup (C) kicked off this week's batch of earnings announcements before the opening bell today, and although some analysts are saying that this is a turning point for the bank, I still can't recommend in good conscience that you touch the financial sector.
I'm an ex-banking analyst and I know that there are still skeletons in the financial industry's closet, and I strongly urge you to avoid them no matter what happens this earnings season.
Last year, financials were down 20%. They bounced in the first quarter when most banks passed the stress tests, but they've more recently been reeling from a lack of investor confidence after the sweeping Moody's downgrades of the industry as a result of "significant exposure to the volatility and risk of outsized losses inherent to capital markets activities." And few stocks are as exposed to the one of the biggest areas of volatility—Europe—than Citigroup.
Citigroup is the third-largest bank in the U.S. in terms of total assets, and while its seeing some growth in emerging markets, the company has also seen some big losses due to currency headwinds in a few of its larger markets, with the Mexican Peso and the Turkish Lira among the biggest culprits. Most importantly, the bank is especially exposed to Spain and the problems there—Citi holds more Spanish debt than any other U.S. bank, and rise in Spanish yields due to the debt crisis there has been the big catalyst hampering Citigroup's stock price of late.
Citigroup announced its second-quarter earnings before the market close today, and while its earnings per share came in at $0.95, beating the consensus by $0.05, its revenue of $18.64 billion (down 9.6% year-on-year) missed estimates.
The fact is that Citi has been a D-ranked stock for more than a year now in free Portfolio Grader ratings system, and there are simply too many better opportunities in the market right now to waste your time with this banking stock.