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Citigroup Long

by SignalFactory   ·  January 14, 2021 | 13:09:15 UTC  

Citigroup Long

by SignalFactory   ·  January 14, 2021 | 13:09:15 UTC  

Investors are always looking for stocks that are poised to beat at earnings season and Citigroup Inc (NYSE: C). Citigroup has earnings coming up pretty soon, and events are shaping up quite nicely for their report.

Citigroup shares are up 60.4% since the beginning of November, but at least one larger option trader is betting on more upside ahead of the company’s upcoming fourth-quarter earnings report.

That is because Citigroup is seeing favorable earnings estimate revision activity as of late, which is generally a precursor to earnings beat. After all, analysts raising estimates right before earnings — with the most up-to-date information possible — is a pretty good indicator of some favorable trends underneath the surface for C in this report.

In fact, the Most Accurate Estimate for the current quarter is currently at $1.36 per share for Citigroup, compared to a broader Zacks Consensus Estimate of $1.35 per share. This suggests that analysts have very recently bumped up their estimates for Citigroup, giving the stock a Zacks Earnings ESP of +1.29% heading into earnings season.

The Citigroup Trades: On Wednesday, Benzinga Pro subscribers received several alerts related to unusually large Citigroup option trades. One trade stood out because of its size and the expiration date of its contracts:

At 10:04 a.m. EST, a trader bought 3,498 Citigroup call options with a $55 strike price expiring on Friday. The contracts were purchased near the asking price at $11.444 and represented a $4 million bullish bet.

Why It’s Important for Citigroup Investors: Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there is no surefire way to determine if an options trade is a standalone position or a hedge.

In this case, given the relatively large size of the call purchase on Wednesday, it could certainly be an institutional hedge.

Citigroup Earnings Beat Coming? The most obvious explanation for the large call purchase on Wednesday is that a deep-pocketed trader simply believes Citigroup is going to report some impressive fourth-quarter earnings numbers on Friday morning.

In October, Citigroup reported big third-quarter earnings beat driven by $3.8 billion in fixed-income trading revenue.

Analysts from Barclays, Bank of America, Goldman Sachs, and other firms have recently come out bullish on bank stocks in 2021. The Federal Reserve recently greenlighted bank buybacks starting in the first quarter, so Wednesday’s large options trader may even be more focused on Citigroup’s 2021 guidance than its fourth quarter.

Analysts are expecting Citigroup to report fourth-quarter earnings per share of $1.34 on revenue of $16.7 billion, down 9.1% from a year ago.

Why is this Important?

A positive reading for the Zacks Earnings ESP has proven to be very powerful in producing both positive surprises and outperforming the market. Zacks recent 10-year backtest shows that stocks that have a positive Earnings ESP and a Zacks Rank #3 (Hold) show a positive surprise nearly 70% of the time and have returned over 28% on average in annual returns.

Given that Citigroup has a Zacks Rank #3 and an ESP in positive territory, investors might want to consider this stock ahead of earnings.

Clearly, recent earnings estimate revisions suggest that good things are ahead for Citigroup, and that a beat might be in the cards for the upcoming report.

The $55 calls purchased have a break-even price of $66.45, suggesting only a modest upside from current levels.

Benzinga’s Take: The large options trader may be betting that Citigroup’s guidance will blow investors away given high expectations for bank buybacks, another major stimulus package, and a rebound in the overall U.S. economy following vaccination rollouts.

Citigroup Long (Buy)

ENTER AT: 68.07

T.P_1: 73.34

T.P_2: 82.11

T.P_3: 95.55

T.P_4: 111

S.L: 61.35  

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