Citigroup Dips on Treasury Stake Sale Plan

Updated with Citigroup's latest share price, analysis.

NEW YORK (TheStreet) -- Quotes on Citigroup(C) shares were flashing red on Monday, and it's a sight that stockholders may want to get used to, at least in the near term.

The stock was off 4% to $4.66 in afternoon trades after the U.S. Treasury officially kicked off the exit of its bailout-related stake in the recovering bank's common stock, announcing it would begin selling 1.5 billion shares of the 7.7 billion total. Volume was above 920 million with roughly two hours left in the session.

Citigroup's shares had already been knocked back in repeated runs above $5 last week, despite the company's strong first-quarter profit report, and the pressure of these shares finally coming to market isn't likely to help matters. Where the stock goes from here also has to factor in where it's been, and it's easy to understand the urge for some profit-tacking, given the shares had appreciated more than 45% in 2010 through the end of last week, most of it since March. The stock hasn't closed above $5 since mid-October 2009.

Dr. Linus Wilson, an assistant professor of finance at the University of Louisiana at Lafayette, expects the near-term pressure on Citigroup shares will be modest, and his research points toward the stock being likely to clear the $5 hurdle by the end of the year.

"It's possible if [Treasury] does large share sales in the open market that will have a negative impact on [Citigroup's] share price," he says. However, "I think that's probably baked in because investors have been warned well in advance of the share sale and the Treasury's been pretty clear that they planned to do it through the open market sales."

Wilson says the quicker Treasury sells its shares, the more likely it will ensure a profit on its stake. As of Friday's close at $4.86, the Treasury had a paper profit of about $2.4 billion on this first batch of 1.5 billion shares it's selling through Morgan Stanley(MS). Its cost per share is $3.25 each.

Using a "geometric Brownian motion model," which is a type of mathematical analysis, Wilson says he determined the likely price for Citigroup's shares by mid-December would be $5.57 each. Wilson used the $4.86 closing price on Friday for this analysis, so the model isn't based upon Monday's pullback.