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Another Weak Quarter Seen for Citigroup

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Citigroup (C) will release second-quarter earnings Monday. The stock has had an awful year. Let's look at what to expect in the latest quarterly results.

Background:

Citigroup, the leading global financial services company, has some two hundred million customer accounts. It was founded in 1812 and is based in New York. Citi trades an average of 36.2 million shares per day with a market cap of $76.6 billion.

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52-week range: $23.11- $42.03, book value: $62.01, float short: 1.89%

Citi is anticipated to report weak second-quarter earnings before Monday's market open. The consensus estimate is currently $0.89 per share, a decline of $0.20 (18.3%) from $1.09 during the same period last year.

Analysts as a whole like this company. Currently, Citi has 13 "buy" recommendations out of 20 analysts covering the company, four "holds," and three recommend selling.

Eleven out of 20 analysts now rate Citi a "strong buy," down from 12 analysts a month ago. Compared to three months ago, fewer analysts are rating this company as a "strong buy."

Shareholders have not been rewarded for their patience; shares have fallen 34.4% in the last year, and the average analyst target price for Citi is $40.69.

I don't get too excited about analysts tripping over themselves to tell the world they recommend buying one of the largest investment banks in the world. Still, Citi is now trading at such a discount to earnings and relative value of the balance sheet that it's hard to make a case to sell if your time horizon is measured in quarters or years and not in months or less.

Weinstein estimate: Citi reports a slight beat with modest guidance, but shares move higher with anything other than downright negative guidance.

The trailing 12-month price-to-earnings ratio is 6.9, and the mean fiscal-year estimate price-to-earnings ratio is 6.78, based on earnings of $3.85 per share this year. Investors are receiving $0.04 in dividends for a yield of 0.15%.

In the last month, the stock has fallen -1.4%, but like many banks, Citi has fallen over 30% in the last year.

For the same fiscal period year-over-year, revenue has declined to $86.60 billion last fiscal year compared to $91.10 billion in the previous year. The bottom line has rising earnings year-over-year of $10.60 billion last fiscal year compared to a $1.61 billion loss in the previous year.

In Citi's previous earnings release on April 16, the closing price before earnings was $33.41. The one-day price drop was $0.59 for a 1.77% change. Citi has lost about 22.5% of its value since the last earnings after beating estimates by nearly 10%.

Citi beat earnings in three of the last four quarters, with one miss of $0.12 (-24%) per share.

Peers for Citi include (in order of their earnings release date):

JPMorgan Chase (JPM) will report before the market open on Friday. The consensus estimate is currently $0.80 per share. The mean fiscal-year estimate price-to-earnings ratio is 7.98, based on earnings of $4.29 per share this year.

Wells Fargo (WFC) will also report before the bell on Friday. The consensus estimate is currently $0.81 per share. The mean fiscal-year estimate price-to-earnings ratio is 10.05, based on earnings of $3.28 per share this year.

JPMorgan and Wells Fargo should provide an idea of what to expect from Citi, at least in terms of the overall market. Both banks have a higher price-to-earnings multiple compared to Citi. However, Citi's declining price is entering into over extended territory.

Bank of America (BAC) will report before the bell next Wednesday. The consensus estimate is currently $0.15 a share. The estimate price-to-earnings ratio is 13.47, based on earnings of $0.56 per share this year.

US Bancorp (USB) will report before the opening bell on July 18. The consensus estimate is currently $0.69 per share. The mean fiscal-year estimate price-to-earnings ratio is 11.6, based on earnings of $2.75 per share this year.

Morgan Stanley (MS) will report before the opening bell next Thursday. The consensus estimate is currently $0.45 per share. The mean fiscal-year estimate price-to-earnings ratio is 10.37, based on earnings of $1.32 per share this year.

Investors will have the most amount of information moving into earnings for Bank of America and Morgan Stanley. No surprises from an industry perspective, but each reporting of the other banks will influence their stock price.

Morgan Stanley is the best bet from a valuation comparison based on the cost to buy value. Citi comes in a close second.

I expect JPMorgan's earnings release to have the biggest impact on Citi and the other big banks.

The latest problem for banks including Citi, Bank of America, UBS AG (UBS), Barclays (BCS), JPMorgan, and others is the LIBOR rate-setting scandal. These banks submitted bids and may be under investigation as a result. The good news for investors is that so many appear to have their hands in the cookie jar that it is unlikely any punishment will cause too much pain. Beyond political gamesmanship, I don't expect too much to come out of this. No material changes in Citi's earnings ability, anyway.

Slow economies worldwide will hold back profits at least through 2012, although a pickup in lending for sales in the last quarter of 2012 (to beat the capital gains tax increases) may help.

At the time of publication, the author had no holdings in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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