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
TheStreet Open House

'Stay Long' on Citigroup, says Bank of America

Stocks in this article: C I:BKX

NEW YORK (TheStreet) -- Even though Citigroup's (C - Get Report) stock is up 90% since the end of 2011, Bank of America Merrill Lynch analyst Erika Najarian expects the stock to "almost double" the performance of the S&P 500 in 2014.

Citigroup's shares closed at $50.71 Wednesday, rising 28% this year and "underperforming" the 30% return of the KBW Bank Index (I:BKX).  The shares trade for 0.9 times tangible book value, for 9.4 times the consensus 2014 Earnings estimate of $5.41, among analysts polled by Thomson Reuters, and for 8.5 times the consensus 2015 EPS estimate of $5.95.

That's the lowest valuation to consensus 2015 EPS among the 24 components of the KBW Bank Index.

"Despite recent underperformance and sell-side downgrades, we think C remains one of the most compelling ideas among large-cap financials heading into 2014," Najarian wrote in a client note on Thursday.

The analyst reiterated her "buy" rating for Citigroup and raised her price target for the shares to $61 from $58, implying 20% upside potential over the next 12 months.

While providing plenty of reasons for her confidence in Citigroup, Najarian wrote, "if we could boil it down to one line, it is this: At this mid-stage of recovery, investors should own the US-based, globally exposed bank stock trading below tangible book that has plenty of capital and is also a 'self help' story."

Citigroup derives a far greater share of revenue and profit from business outside the United States than any of its large-cap U.S. competitors.  The company reported that for the first three quarters of 2013, 57% of its revenue and 62% of its profit -- excluding credit and debit valuation adjustments -- came from outside the U.S.

The company continues on its long-term course "good bank/bad bank" recovery strategy, allowing nonperforming and non-core assets to wind down within the Citi Holdings subsidiary.  Citi Holdings had $122 billion in assets as of Sept. 30, declining 29% from a year earlier and 59% from two years earlier, representing just 6% of Citigroup's total assets.

According to Najarian, Citigroup is "to post the most incremental change in capital payout this year, which we project to include a dividend increase."  The analyst is referring to the next round of Federal Reserve stress tests and capital plan reviews, which will take place in March of next year. 

"Based on our own bottoms up projections, C would have no issues paying out $9bn in capital [thorugh dividends and share buybacks] while exceeding all the current capital hurdles outlined in next year's test," Najarian wrote.

She estimates Citigroup's earnings will improve from $4.62 a share this year to $5.65 in 2014 and $6.15 in 2015.

Citigroup's shares were down slighty in late morning trading, to $50.60.

C ChartC data by YCharts

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

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 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.

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link 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

Jim Cramer's protégé, 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
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, 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
Try it NOW
Try it NOW
Try it NOW
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 17,316.37 +125.00 0.73%
S&P 500 2,009.52 +7.36 0.37%
NASDAQ 4,646.0790 +8.0850 0.17%

Partners Compare Online Brokers

Free Reports

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