Shares of Citigroup closed at $25.79 Wednesday, down 4% year-to-date, following a 44% decline during 2011.

The shares trade for just under half their reported June 30 tangible book value of $51.81, and for less than six times the consensus 2013 EPS estimate of $4.54. The consensus 2012 EPS estimate is $4.09.

Citigroup reported second-quarter earnings of $2.9 billion, or 95 cents a share, matching its first-quarter results, but declining from $3.3 billion, or $1.09 a share, a year earlier.

For investors with a long-term horizon, analysts see a huge potential for capital returns from Citigroup, as capital tied up in the company's Citi Holdings subsidiary -- which holds assets that are running off, as part of CEO Vikram Pandit's "good bank/bad bank" strategy to right-size the balance sheet -- is slowly released. The company also has another $63 billion in deferred tax assets that could eventually be utilized, according to Atlantic equities analyst Richard Staite.

O'Connor's price target for Citigroup's shares is $40, and the analyst estimates the company will earn $4.05 a share this year, followed by 2013 EPS of $4.64, excluding DVA/CVA.

The analyst said that "2Q12 was a step in the right direction for C being able to deliver respectable earnings in a tough macro and capital markets environment." O'Connor added that "one issue for the stock, in our view, has been the volatile EPS power (good earnings in good macro quarters and very weak in bad macro quarters) and a few more quarters like 2Q should help the stock close its valuation discount to peers."

C Chart C data by YCharts

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

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-- Written by Philip van Doorn in Jupiter, Fla.

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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 TheStreet.com 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.

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