Citigroup Stock Gains 4% Post Q3 Earnings: Should You Hold or Fold?

Core Insights - Citigroup's shares increased nearly 4% following the release of its Q3 2025 results, indicating investor optimism regarding the bank's strong quarterly performance and positive outlook for 2025 [1] Financial Performance - Citigroup reported a net interest income (NII) of $14.9 billion in Q3 2025, an 11.8% increase year-over-year, driven by higher average deposit balances and improved deposit spreads [6] - Non-interest revenues rose 4.4% year-over-year to $7.2 billion, supported by strong performance in Markets, Banking, and Wealth divisions [7] - Operating expenses increased by 8.7% year-over-year to $14.3 billion, primarily due to rising costs across most components [8] - Total non-accrual loans surged 69.8% year-over-year to $3.7 billion, with an allowance for credit losses on loans at $19.2 billion, up 4.6% from the prior year [9] Strategic Initiatives - Citigroup is advancing its multi-year strategy to streamline operations, having exited consumer banking in nine countries since April 2021 [12] - The bank announced a 25% stake sale in Banamex, progressing towards full divestiture, and is also winding down its Korean consumer banking operations [13] - A significant job reduction plan aims to cut 20,000 jobs (about 8% of its workforce) by 2026, with over 10,000 jobs already reduced [14] - CEO Jane Fraser emphasized that the execution of the transformation strategy has improved business performance and competitive positioning [15] Future Outlook - Citigroup expects total revenues to exceed $84 billion in 2025, with a projected 4-5% compound annual growth rate (CAGR) through 2026 [16] - The bank's NII is benefiting from recent Federal Reserve interest rate cuts, with a projected increase of 5.5% for 2025 [17][18] - Citigroup is embedding AI and automation across its operations to enhance efficiency and risk controls, with nearly 180,000 employees utilizing proprietary AI tools [19] Capital Distribution - As of September 30, 2025, Citigroup's liquidity position was strong, with cash and investments totaling $474.3 billion [21] - The bank raised its dividend by 7.1% to 60 cents per share and has a payout ratio of 33%, with a dividend yield of 2.4% [22] - A $20 billion common stock repurchase program was approved, with nearly $11.3 billion remaining as of September 30, 2025 [25] Investment Considerations - Citigroup's solid revenue growth and transformation strategy position it for sustainable long-term growth, with upward revisions in earnings estimates for 2025 and 2026 [26][27] - The bank is trading at a forward P/E of 10.77X, below the industry average of 14.83X, indicating it may be undervalued [30][33]