NEW YORK (
's latest restructuring move is garnering praise from sell-side equity analyst Dick Bove, who says he thinks the stock should be "aggressively bought" right now.
"The true value of Citigroup is well in excess of its current stock price," Bove of Rochdale Securities tells clients in a research note issued Wednesday. "Some of its hidden asset values are now being recognized. It is led by a very capable CEO. The stock is seriously undervalued."
Citigroup took measures late Tuesday to further pare down Citi Holdings, its bad bank entity, by announcing that it would downsize and restructure its consumer finance business,
. The changes are viewed as part of an effort by the recovering financial institution to make the unit more attractive to potential buyers.
Citigroup's stock is currently selling at a "slight discount" to its tangible book value, which Bove calculates at $3.99 a share. He estimates that Citigroup's stated book value to be $5.15 per share.
"This means the company is selling below its liquidation value. More to the point the tangible book value is meaningfully understated. Thus the stock is reflecting the fact that the U.S. government is selling its holdings and not the intrinsic value of the organization. The issue should be aggressively bought," Bove writes.
Bove figures that CitiFinancial is worth somewhere between 0.9-1.1 times the revenue it generates of approximately $3.6 billion.
"The restructuring of this business and its potential sale would increase Citigroup's book value," Bove writes. "This is because the bad loans in the 180 branches Citigroup retains have already been written down to their current value. The closure of the 380 branches has been partially reserved for and is not expected to have material costs associated with it. The potential profit from the sale of a healthy consumer finance business is not in the company's book value or earnings."
Citigroup shares were meekly rising 1% to $3.89 in Wednesday's session. Volume was surprisingly light for the heavily-traded issue. With a little more than an hour left in the session, just 352 million shares had changed hands, less than half the stock's trailing three-month daily average volume of roughly 810 million shares.
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After a run-up surrounding its first-quarter report that had the stock up more than 50% for the year at one point, Citigroup shares have pulled back 21% since April 23, the last day of trading before the Treasury announced it would beginning selling its stake in the bank, and have now risen only 16% in 2010.
received two major upgrades last week, market participants say that the stock is likely to stick to a $4 trading range in the near term as the
continues to sell shares and macroeconomic issues are weighing down equities in general.
But Bove, who has a price target of $6.90 on the stock, was emphatic in his assessment of the current opportunity.
"If you are not buying Citigroup today, you are making a big mistake," he writes.
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--Written by Laurie Kulikowski in New York.