This Day On The Street
Continue to site
ADVERTISEMENT
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

Citigroup Pays for Rally With a Downgrade

NEW YORK ( TheStreet) -- Sterne Agee analyst Toddd Hagerman on Monday downgraded Citigroup (C - Get Report) 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

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

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

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
C $58.61 -0.44%
AAPL $122.04 -0.77%
FB $93.14 -4.00%
GOOG $623.84 -1.30%
TSLA $264.11 0.11%

Markets

Chart of I:DJI
DOW 17,696.17 -55.22 -0.31%
S&P 500 2,100.31 -8.26 -0.39%
NASDAQ 5,090.3690 -21.3640 -0.42%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs