Research Roundup: Citigroup Out of ICU
Citigroup (C) has been on a roll this week, sparked off on Tuesday by CreditSights‘ upgrading of the company’s stock and debt to Overweight. As TheStreet.com reports, CreditSights termed Citi’s stock a “screaming bargain” and declared Citigroup “back from the brink and back in business.”
CreditSights’ comments were followed by a bullish interview of Vikram Pandit in the Financial Times:
… the Citi chief claims to have the formula that could take the company from last year’s $8bn loss to, if you follow his maths, as much as $20bn in earnings from its core business by 2012.
This was followed up by more of the same in Pandit’s speech to a Citi-sponsored investor conference on Thursday. (Transcript available here).
CreditSights also weighed in again after Pandit’s presentation “[O]n a relative value basis, Citigroup is still trading cheaper to peers due to the uncertainty surrounding some of the Citi Holdings’ assets,” TheStreet.com adds.
Still, we are of the view that over the next two years the stock has significant upside if the company is able to stabilize losses and return to a utility-like multiple. - CreditSights
The government’s 27% stake in Citigroup, and the knowledge that it might soon sell some or all of it, remains a damper on the upside for the stock.
Rochdale Securities analyst Dick Bove notes that Citi “is no longer a risk management business; it is no longer an acquisition specialist; and it is no longer a transformational company.”
In an interview with Bloomberg, Bove said Citigroup could double to $8.50 per share.
As MarketWatch notes, Citigroup is pretty much just a bank. “It takes in deposits and lends money. Citi made $11.2 billion in net interest income in 2009. It made $4.29 billion in commissions. Without aggressive bets on derivatives, trading and cheap cash from the government, Citi will need a lot of luck to make $20 billion.”
24/7 Wall Street’s Doug MacIntyre thinks Pandit has only a very small chance of delivering on his forecasts. “Pandit has clearly not learned one of the most important lessons for public company CEOs—under-promise and over-deliver.”
Meanwhile, Moody’s sounds a note of caution in a new report U.S. bank asset quality stabilizes, but the pain isn’t over as does Fitch in its latest quarterly review of the US banking industry (available for complimentary download).
Loan loss provisions remain well above pre-crisis levels and will need to fall considerably more before Citi is able to generate significant operating profits. - Fitch Ratings
Other analyst comments;
Bank of America’s Guy Moszkowski had a buy rating on Mar 4 with a target of $5.10.”Despite mgt guidance for modestly higher US credit costs in 1Q10, we think C will manage to post a small profit, a positive stock catalyst. Key will then be to line up a few profitable quarters, which our forecasts currently anticipate.”
Glenn Schorr of UBS on Mar 2 remained Neutral, with a price target of $3.75.
Barclays Capital’s Jason M. Goldberg on Mar 1 held an Overweight rating with a $5 target.
Matthew Albrecht of Standard and Poor’s in a Jan 19 report had a Hold recommendation with a $4.50 target.
For latest analyst comment on Citigroup, see Alacra Pulse.
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