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Big Banks: Housing and Earnings Winners

Mayo Flips on Citi

One day after former Citigroup (CEO) CEO Vikram Pandit abruptly resigned, after which CLSA analyst Mike Mayo said "the hand-off could not be more awkward for investors to digest - it is tough to get more positive on this stock on this information alone," the analyst changed his tune.

Following a conference call late on with analysts by Citigroup Chairman Mike O'Neill and new CEO Michael Corbat, Mayo on Wednesday upgraded Citi to an "Outperform" rating from "Underperform," while raising his price target for the shares to $43 from $31.00.

Mayo was impressed by the presentation by O'Neill and Corbat, and said that "a new three-year plan holds out hope for more restructuring, akin to actions taken by the Chair in his past jobs," and that "dividend reinstatement seems near-certain given mending of the regulatory credibility gap."

The analyst said that "notwithstanding this poor transition, we can think of no better person as chairman of Citi than Michael O'Neill, who led the way with using economic value added concepts in the late 1990s when he restructured legacy Bank of America," and that O'Neill "was one of the first adopters of what we then termed 'addition by subtraction', or eliminating subpar businesses to add to returns. If there was ever a company where this could be successful, it is Citigroup today."

Mayo's estimated "sum-of-the-parts" valuation for Citigroup is $52 a share.

Citi's shares rose over 3% to close at $38.43. The shares have now returned 46% year-to-date, following a 44% decline during 2011.

The shares trade for 0.7 times their reported Sept. 30 tangible book value of $52.70, and for eight times the consensus 2013 EPS estimate of $4.63.

C Chart C data by YCharts

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