This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Citigroup Pays for Rally With a Downgrade

Stocks in this article: C

NEW YORK ( TheStreet) -- Sterne Agee analyst Toddd Hagerman on Monday downgraded Citigroup (C) to a "Neutral" rating from a "Buy" rating, saying "we see increasing potential downside risk vs. a meaningful upside catalyst, at least in the near/intermediate term."

"C shares have rallied 30% since the July lows, fueled by renewed optimism tied to the global economy and a meaningful global liquidity infusion" the analyst said, adding that the expected earnings and boost from a significant release of loan loss reserves from Citi Holdings -- the subsidiary into which runoff assets have been placed, as part of Citigroup CEO Vikram Pandit's continuing "good bank/bad bank" strategy of right-sizing the company's balance sheet -- and "a more meaningful reduction in the disallowed deferred tax assets " seem "a ways off."

Citi's shares are the cheapest to book value or forward earnings estimates, among the 24 components of the KBW Bank Index (I:BKX).

The shares closed at $32.97 Friday, returning 24.5% year-to-date, following a 44% decline during 2011. The shares traded for 0.6 times their reported June 30 tangible book value of $51.81, and for 7.3 times the consensus 2013 EPS estimate of $4.54, among analysts polled by Thomson Reuters. The consensus 2012 EPS estimate is $4.09.

While agreeing that Citigroup's shares are cheap to book value, Hagerman said that "potential upside from current levels is limited in our view given our fair value estimate of ~$36/share."

The company will announce its third-quarter results before the market opens on Oct. 15, with the consensus among analysts being a profit of 98 cents, compared to 95 cents the previous quarter, and $1.23 a year earlier.

Hagerman cited a litany of challenges for Citigroup. "C's international growth (~60% of revs) began to show signs of slowing in 2Q12, particularly Asia. In addition, with the recent concerted effort around the globe to actively supply seemingly endless liquidity, we are already beginning to see trade forecasts lowered, expected pressure on global currencies, concerns for rising inflation, and ongoing volume in the Euro-zone with the most troubled debtor nations."

The analyst added that "the overhang tied to persistent regulatory/political uncertainty in the U.S. and emerging geopolitical risks challenge identical catalysts to drive the shares much higher."

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs