Citigroup's ( C) shareholders are a patient lot, but how long must they wait for the financial services behemoth to find its groove? Over the past 15 months, investors have watched the stock trade sideways while its peers have outperformed. Through acquisitions, management changes, assets sales, new hires and a blockbuster year for most of its competitors, the stock hasn't done much. Since the start of 2005, Citi shares have added roughly a dollar, closing Tuesday at $47.60. Still, bulls keep the faith. Last week, Richard Bove, analyst at Punk Ziegel & Co., called Citigroup his favorite stock. "We look forward to many years of Mr. Prince's leadership," Bove said in a recent report, referring to CEO Charles Prince, who is in the process of succeeding Sandy Weill as chairman. Many institutional shareholders that have Citigroup as a large percentage of their portfolio show no interest in selling. Amid the cheerleading, however, Citigroup remains a laggard, and even some fans are starting to wonder if anything can kick the funk. Shares have risen just 6.7% this year. Two peers, JPMorgan Chase ( JPM) and Deutsche Bank ( DB), have seen their shares rise 19.3% and 29.2%, respectively. Other large global banks have seen even more of a lift, with Goldman Sachs ( GS) running up 40.5% and Morgan Stanley ( MS), despite all its woes, gaining 11.8%. The picture gets bleaker going further back in time. In mid-2001, shares of Citigroup were almost exactly where they are now, hovering around $48. And while investors seem willing to hang on for some long-awaited upside, others are getting antsy. "You can see the great stock price performance of the big brokers, and it is not like Citigroup is doing terribly," said Michael Hussey, senior adviser at Bufka & Rogers, a large holder in the stock. "I do think that the stock is undervalued, but I don't see some obvious tactics to get it up."
While Citi might seem ready to spring going by the performance of its peers, the company's valuation doesn't scream value. With a price at 10.2 times 2007 consensus estimates, according to Thomson Financial, Citi fetches the same multiple as Goldman Sachs, and just slightly less than JPMorgan's 10.8 times projected income. The ratio sits between two other close peers, Wachovia Bank at 10.8 and Bank of America's 9.7. The company's operating performance, at the very least, has been satisfactory. In 2005, revenue at the company grew by more than 18%, after vaulting 14% in the prior year. After excluding one-time charges, earnings per share rose 16.9% in 2005, and analysts peg the company's long-term growth rate at 7%, in line with its lending peers. Many remain confident in Prince's leadership and his long-term goals at Citigroup. The investment banking veteran laid out a specific plan about what assets Citigroup will keep, and which it is better without. His vision -- focusing on segments that can grow while divesting those in which he doesn't have majority control -- differs from Weill's, who often sought expansion at any cost. Weill's tenure marked an acquisitive time for the bank -- something that is seen as positive for its future if Prince can manage the size correctly. While scale has been a challenge for Citigroup over the past few years, Prince has spent most of his time as CEO fine-tuning some of Weill's acquisitions and making Citigroup's bulky size work for it. "In the process of restructuring Citigroup, Prince completely dismantled what Weill's process has been. He has been able to be independent enough to take his old boss' legacy and eliminate it," said Bove. "It takes a lot of guts to get up there and do what he is doing with these businesses."
For example, Prince helped push through the divestiture of two large segments in 2005. In February of last year, the company agreed to sell Travelers Life & Annuity to MetLife ( MET) for $11.8 billion. Later in the year, Citigroup completed the sale of its mutual fund unit via an asset swap with Legg Mason ( LM). Bove isn't alone in his high hopes for Citigroup under Prince. Of the 25 research firms that cover the stock, there is only one sell rating. Many of the research ratings are overweight, outperform and buy, showing similar hope that the stock price could present significant opportunity for gains. So hopes for a lift in Citigroup's shares shouldn't be abandoned, right? If there were ever a time Citigroup's stock might rise, it would be when the peer group was making a run. But while large shareholders are confident that their long-awaited returns are just around the corner, none can give solid direction about how the company can make that happen. Making any meaningful, large acquisition would be dilutive, given the current share price. Spinning off an asset, such as the investment banking unit, could potentially unlock value in the company. But given Prince's efforts in turning around the four main segments of the firm, there isn't "a snowball's chance they would sell one," says a shareholder. The company could continue to build its brand, something that would help the consumer banking division, but that initiative isn't new. Expanding overseas is something that the company said it would do, and on Tuesday, reports emerged that it may take a $5 billion interest in a Turkish bank. While the acquisition would continue to expand Citigroup's reach into fast-growing emerging markets, the reports ended up pressuring the stock. At the end of last year, some Wall Street analysts began to wonder if a catalyst would ever emerge. Fox-Pitt Kelton analyst Jon Balkind downgraded the stock to in line from outperform in December, saying that Citigroup "faces uphill battles heading into 2006." After fiscal year earnings were reported in January, Balkind said, "We think the shares will be weak," and the company reiterated its rating.
Shareholders are left grasping for straws. The company throws off a significant amount of free cash, which in the past has been used to buy back shares, something that current shareholders encourage. But as far as any real share returns go, the jury is out. "Continue to run a tight, efficient ship, grow business
the best you can," said Hussey. "Continue blocking and tackling; executing and taking advantage of the fantastic scale. That's really the best thing they can do."