NEW YORK (
shares slumped Wednesday as Wall Street weighed in following the company's fourth-quarter report.
Morgan Stanley's semi-bearish view seemed to be carrying the day as the firm lowered its earnings estimates for this year and the next, going to 9 cents a share for fiscal 2010 and 24 cents a share for fiscal 2011. The previous estimates were for profits of 17 cents a share in 2010, and 31 cents a share in 2011. The current consensus estimates of analysts polled by
are for earnings of 7 cents a share in 2010, and 34 cents a share in 2011.
The stock was down 2% to $3.47 in recent action. Volume of 369 million compared to the issue's trailing three-month daily average of 496.4 million, and was good for most active on the New York Stock Exchange. The shares gained a little more than 3%, however, on Tuesday in the session immediately following the release of the results.
Betsy Graseck, the analyst covering Citigroup at Morgan Stanley, cited expectations for lower top-line growth and the potential bank fees proposed recently by President Obama for the lower view of fiscal 2010 and 2011.
Morgan Stanley has an equal-weight rating on Citigroup shares with a price target of $5, and Graseck said she expects the company to achieve normalized earnings of 60 cents a share in fiscal 2013, and that there could be some upside to this view after details are released of the company's plans to shift $61 billion in assets to its Citicorp structure from the Citi Holdings' portfolio, where it currently houses what it considers its toxic assets.
She was also positive about valuation, saying: "We see significant upside to the stock at current prices, but believe the timing to hit this price
$5 price target will lag overweighted names in our Large Cap coverage due to C's longer tailed balance sheet and business model restructuring."
UBS took a bit different tact, choosing instead to focus on the "incremental progress" it believes Citigroup is making as it lifted its 12-month price target to $3.75 from $3.50 a share.
"We see Citi as a credit improvement/capital markets story; these two items are the keys to getting back to profitability," the firm told clients in a research note. "Every $5 billion change in credit costs = ~ 11 cents per share & IB
investment banking revs can really move the needle, even with almost 30 billion shares o/s
Of the latest quarter, UBS was fairly blunt, saying the results were mixed and could have been worse without the impact of a $7.4 billion tax benefit related to income Citigroup is earning then indefinitely reinvesting in countries with relatively lower tax rates, and the impact of a higher proportion of the company's income from "tax advantaged" sources.
The firm, which kept its neutral rating on the company, plainly stated its investment thesis in the note, saying: "As we see it, given healthy capital and reserve levels, and mixed signs of stability on the credit front, Citi can continue to the wind-down of Citi Holdings assets over time, while it looks to stabilize and grow CitiCorp."
Collins Stewart also weighed in, lowering its earnings estimates to 20 cents a share for fiscal 2010, and 40 cents a share for fiscal 2011, shaving two cents off both views. The firm said its change was motivated by weaker results in Citigroup's investment banking business and lower interest revenue, but it kept a hold rating and $4 price target on the stock, saying credit trends for the fourth quarter, while still far from good, were better than expected.
The KBW Bank Sector index (BKX) was trading 1.2% higher in afternoon action with rallies in shares of components like
Bank of New York Mellon
Northern Trust Corp.
following their results overwhelming sluggish action in both Citigroup and its fellow money-center banks
Bank of America
, who both reported before Wednesday's opening bell.
Written by Michael Baron in New York