NEW YORK (TheStreet) -- The expected cutting of earnings estimates for the nation's largest banks continues, but Bank of America Merrill Lynch analyst Erica Najarian still thinks Citigroup's (C - Get Report) stock is a bargain.
In light of JPMorgan Chase's (JPM) announcement at its investor conference last month that first-quarter trading activity was running at a 15% slower pace than last year, followed by similar guidance from Citigroup, analysts have expected a soft first quarter for the nation's largest banks. Jefferies analyst Ken Usdin cut his first-quarter earnings estimate for Citi significantly, and predicted other analysts would follow suit, while writing in a client note that he favors JPMorgan and Bank of America (BAC) for the next year, over Citigroup.
Najarian on Wednesday cut her 2014 earnings estimate for Citigroup to $4.95 a share from $5.60, while also cutting here 2015 EPS estimate to $5.80 from $5.90, and cutting here 2016 EPS estimate to $$6.20 from $6.35.
Citigroup's shares closed at $48.14 Tuesday, down 8% this year, following a return of 32% in 2013. The shares trade for 0.9 times tangible book value, according to Thomson Reuters Bank Insight, and for 8.4 times the consensus 2015 EPS estimate of $5.72. By both of those measures, Citigroup is the cheapest among large-cap U.S. bank stocks.Citi will announce its first-quarter earnings on April 14, with a consensus EPS estimate of $1.23. Najarian's first-quarter EPS estimate is $1.05. In addition to the trading revenue weakness, Najarian cited continued additions to loan loss reserves in the Citi Holdings runoff subsidiary, as well as Citigroup's "elevated litigation costs." This year's weakness for the stock reflects investors' concerns over Citigroup's exposure to emerging markets, since most of the bank's revenue and profit is derived from outside the United States. "More recently, investors are concerned that the fraud issue in Banamex could impact C's stress test process this year," Najarian wrote. The Federal Reserve will announce the results of its annual stress tests for major U.S. bank holding companies on Thursday. The regulator on March 26 will follow up with the results of the annual Comprehensive Capital Analysis and Review, which incorporates banks' plans to deploy excess capital into another set of stress tests. Most analysts expect a significant increase in Citi's quarterly dividend from the current penny a share, as well as a major increase in planned share buybacks. (I:BKX) since the end of 2011.
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