C vs. WFC: Which Stock Has More Upside Post Rate Cut Rally?

Core Insights - The financial performance of Citigroup, Inc. and Wells Fargo & Company is significantly influenced by the Federal Reserve's interest rate changes, with both banks presenting unique investment opportunities [1][3] - A detailed analysis of the operational strategies and financial metrics of both banks is essential to determine which stock may offer greater upside potential as the Fed shifts towards monetary easing [2] Interest Rate Impact - The Federal Reserve initiated an easing cycle by cutting interest rates by 25 basis points to a range of 4.00-4.25%, marking the end of a nine-month pause, with expectations of two additional rate cuts by the end of 2025 due to a softening labor market [3] - Lower interest rates are expected to support net interest income (NII) growth, a crucial earnings driver for both banks, despite potential compression of yields on loans and securities [4] Financial Performance - Citigroup's NII increased by 8% year-over-year in the first half of the year, while Wells Fargo's NII declined nearly 4% year-over-year [5] - For 2025, Wells Fargo anticipates NII to align with the $47.7 billion reported in 2024, whereas Citigroup's NII (excluding Markets) is projected to rise by 4% year-over-year [5][10] Strategic Approaches - Citigroup is focusing on streamlined operations and restructuring its international business, including exiting consumer banking in 14 markets, which is expected to free up capital for investments in wealth management and investment banking [6][7] - Wells Fargo is prioritizing risk management and compliance improvements, with significant progress noted under CEO Charlie Scharf, and aims to grow its market share in both consumer and commercial lending [8][9] Expense Management - Citigroup is undergoing a comprehensive transformation to reduce expenses, with expectations for 2025 and 2026 expenses to be lower than the $53.9 billion reported in 2024 [12] - Wells Fargo is balancing cost management with investments in its branch network and digital tools, projecting non-interest expenses to be $54.2 billion in 2025, a decrease from $54.6 billion in 2024 [13] Stock Performance and Valuation - Over the past year, Citigroup's stock has surged by 65.1%, while Wells Fargo's shares have gained 50.9%, both outperforming the industry average of 49.9% [14] - Citigroup's trailing P/E ratio is 11.2X, compared to Wells Fargo's 13X, indicating that both stocks are trading at a discount relative to the industry average of 15.1X, with Citigroup being the cheaper option [16] Dividend Yields - Both banks offer dividends, with Wells Fargo's yield at 2.14% and Citigroup's at 2.35%, giving Citigroup a slight advantage in this area [20] Earnings Estimates - The Zacks Consensus Estimate for Citigroup's 2025 sales and EPS indicates year-over-year increases of 4.6% and 27.3%, respectively, with upward revisions noted for EPS estimates [23] - For Wells Fargo, the 2025 sales and EPS estimates imply year-over-year growth of 1.4% and 12.5%, respectively, also with upward revisions [26] Investment Outlook - Citigroup appears to offer stronger upside potential due to its streamlined operations and focus on high-growth areas, suggesting faster earnings growth compared to Wells Fargo [29]