Analysts Raise Targets, Estimates For Citigroup

NEW YORK ( TheStreet) -- Analysts raised estimates and price targets for Citigroup ( C), after it reported stronger-than-expected second-quarter results on Monday.

The New York-based bank said second-quarter profit rose 25% year-over-year, excluding non-core items, driven by strong trading revenues, improving credit quality and shrinking losses at its non-core business.

The earnings beat came even as emerging markets showed signs of slowing down. Citigroup gets more than 60% of its revenues from outside the United States.

Shares of Citigroup rose 2% Monday following the earnings report and are now up more than 30% year-to-date. But analysts remain bullish on the stock and continue to cite its attractive valuation.

"Though the bar has been raised with the share price surge and elevated headline risk tied to slowing emerging markets, our sense is the positive catalysts will drive the shares higher given the steep discount," Sterne Agee analyst Todd Hagerman wrote in a report early Monday.

The analyst said Citigroup's stock could have meaningful upside given expectations for "positive leverage across the franchise in '13, diminishing earnings drag tied to Holdings, ongoing momentum in capital markets, nearly double-digit growth in tangible book value, and positive earning asset growth, including relative margin stability." Citi Holdings is the subsidiary into which Citigroup has placed non-core assets, allowing them to run-off or be sold.

Hagerman raised his 12-month price target of Citigroup to $61 from $56.00. He also increased his earnings estimate for 2013 by $5.10 a share from $4.85, and the 2014 EPS estimate to $5.65 from $5.55.

KBW analyst Fred Cannon also raised estimates for the bank and bumped up his price target to $58.00.

Cannon was impressed by Citi's progress in building capital during a quarter where "equity was weighed down by both a decline in AFS available for sale securities and the negative impact of foreign currency translations in a volatile FX market."

Citi finished the quarter with a Basel III Tier I Common Ratio of 10%, ahead of the minimum regulatory requirement of 9.5% it needs to meet by 2019. This sets the stage for "improved capital deployment in 2014," according to Cannon.

During the conference call, analysts raised concerns about the slowdown in emerging markets, particularly in China. Management acknowledged that growth was somewhat slower than they had initially expected, but maintained a positive outlook for emerging markets.

While Citicorp, the bank's core unit, did not show a material decline in international revenues in the second quarter, a meaningful slowdown in emerging markets would cause KBW to be more cautious in their outlook, Cannon said.

"We believe C would still benefit in this environment, but not as much as other banks that have a greater percentage of earnings from U.S. revenues," he wrote.

Still, the analyst said a possible sell-off related to emerging market growth fears should be viewed as a buying opportunity for Citi. "We like C's position given the current global macroenvironment and we do not believe we are at an inflection point for emerging market growth," he wrote.

-- Written by Shanthi Bharatwaj in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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