Schaeffer's Trading Floor Blog

Optimism Surrounds Citigroup Inc (C) As Earnings Loom

Will C fall short of earnings estimates again?

by 4/11/2014 2:51 PM
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Citigroup Inc (NYSE:C) is down 0.9% at $45.80, swooning in sympathy with sector peer JPMorgan Chase & Co. (NYSE:JPM). The latter company's poorly received turn in the earnings spotlight -- as well as news of a Department of Justice investigation -- has weighed on C ahead of its own turn in the earnings confessional before the opening bell on Monday.

Historically, Citigroup has fallen short of the Street's per-share earnings estimates in three of the past five quarters. In fact, the stock suffered a one-week post-earnings slide of 7.8% after its last earnings release. Nevertheless, short-term options players are more call-heavy than usual right now, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.59 stands higher than just 20% of all comparable readings from the past year.

What's more, option bulls of late have been paying up for their short-term contracts. Citigroup's Schaeffer's Volatility Index (SVI) has moved higher ahead of earnings, suggesting short-term options are expensive right now, from a volatility perspective.

In the same vein, C boasts 13 "strong buy" ratings, compared to seven lukewarm "holds" and just one "strong sell," despite underperforming the broader S&P 500 Index (SPX) by more than 15 percentage points during the past three months. Plus, the consensus 12-month price target among the brokerage bunch stands at a lofty $58.55 -- representing expected upside of almost 28% to the stock's current perch, and in territory not explored since early 2009.

Should the shares of Citigroup Inc (NYSE:C) extend their downtrend -- the stock is on pace for its lowest daily close since late June -- or should the company once again fall short of earnings projections, a mass exodus of options bulls and/or a flood of negative analyst notes could translate into contrarian headwinds.


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