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8 Post-Downgrade Bank Stock Bargains

Stocks in this article: BAC C MS KEY STI GS ZION CMA I:BKX

1. Citigroup
Shares of Citigroup (WBS) closed at $27.99 Friday, returning 6% year-to-date, following last year's 44% decline.

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The shares trade for 0.6 times their reported March 31 tangible book value of $50.90, and six times the consensus 2013 earnings estimate of $4.62, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.09.

Credit Suisse analyst Moshe Orenbuch rates Citigroup "Outperform," with a $48 price target, saying on Thursday that although international "slowing trends concern investors, these markets (in aggregate) have had faster growth and command higher valuations that the U.S.," and that his firm's "sum-of-the-parts analysis of Citicorp's international segments based on current P/E and P/BV multiples for the regions, derives $45-50 of value for Citicorp's ongoing operations."

Citigroup reported that 60% of its first-quarter revenue came from outside the United States.

Orenbuch added that Citigroup's emerging markets business "is quite diverse by product, business line and country," and that the company "pursues a targeted strategy in international markets with a focus on the pursuit of market share in regions positioned for strong GDP growth," complimenting its "pursuit of banking affluent consumers and global-minded corporate clients-which ultimately positions the company for stronger loan, deposit and earnings growth."

The analyst estimates that Citi will earn $4.25 a share this year, followed by EPS of $5.00 in 2013.

Moody's on Thursday cut its long-term credit rating for Citigroup toBaa2 from A3, with a negative outlook, while affirming its short-term rating of P-2. Citigroup reacted with unusual bitterness, saying in a statement that it "strongly disagrees with Moody's analysis of the banking industry and firmly believes its downgrade of Citi is arbitrary and completely unwarranted," adding that "Moody's approach is backward-looking and fails to recognize Citi's transformation over the past several years, the strength and diversity of Citi's franchise, and the substantial improvements in Citi's risk management, capital levels and liquidity."

The company went on to say that "at the end of the first quarter of 2012, Citi had over $420 billion of surplus liquidity held generally in cash and government securities," and that its liquidity even exceeded "the proposed Basel III Liquidity Coverage Ratio requirement with a ratio of approximately 125%, even though this measurement does not go into effect until 2015."

Interested in more on Citigroup? See TheStreet Ratings' report card for this stock.

-- Written by Philip van Doorn in Jupiter, Fla.

>Contact by Email.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.
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