Is Citigroup Undervalued?

James Dennin, Kapitall: Citigroup has come a long way post-financial crisis, so investors should consider: is the stock undervalued?

One of the most undervalued plays on the market right now is also a household name. Citigroup (C), one of the longest-running banks in the country and the third largest asset holder in the world, is still trading around $44.33, even though it has a book value per share of $63.02. (Book value per share is essentially the money the owner of a common share would receive if the company in question were to liquidate.) 

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That implies a potential upside of almost 40%, on a company that is likely to start increasing dividend payments as well. Its stock is up over 66% this year, with a number of indicators suggesting it will continue making strides towards recovery from the depths of the financial crisis.

In 2008 and 2009, Citigroup owned a lot of trouble assets, about $800 billion worth of mortgage backed-securities and home equity loans. The result was a resounding blow during the financial crisis. It was one of the banks that actually needed the bailouts provided under the Troubled Asset Relief Program (TARP). The company would have probably failed without the $45 billion in government funds.

And as a result of the program, Citigroup had to convert its preferred shares to common stock which almost tripled the number of shares outstanding, and briefly sent the stock price below a dollar. It's tried to institute buybacks for the past two years, but only recently met the new capital requirements needed to go forward.  

Many in high finance decried the new regulatory practices put in place post-financial crisis, particularly the return of the Volcker rule separating commercial and investment banks. But Citigroup seems to be one firm benefitting from the rules. It has used them to craft a strategy focusing on profitability as opposed to size, and one that keeps much more capital on hand, to allay risk and (hopefully) start returning to shareholders via buybacks and higher dividend payments. 

Bulls on Citigroup point to new management as a source of their newfound optimism. For the first time since 2010, Citigroup will be run by a banker from the inside – as opposed to a lawyer or hedge fund manager – which is already affecting the bank's strategy. The company has sold off a number of its "alternative assets" and is rumored to be looking for more buyers. It has also slimmed down, cutting over a thousand jobs worldwide. 

The company has also instituted a number of changes which it hopes will consolidate its efforts, especially abroad. Citigroup provides more banking services overseas than any of its competitors, and has worked on adapting all of its foreign offices to using the same software and banking practices. It has an international banking business which Barrons has called a "gem." More than some other banks, Citigroup looks prepared to capitalize on the faster growing emerging markets. So while there's no way to tell if the company will return to its all-time high of $591 per share, it's darkest days may be behind it. Shareholders take note. 

Click on the interactive chart to see data over time. 

Will Citigroup's growth outpace its competitors? Use the interactive list below to begin your own analysis.

1. Citigroup, Inc. ( C): Provides consumers, corporations, governments, and institutions with a range of financial products and services. Market cap at $150.82B, most recent closing price at $49.60.


2. Wells Fargo & Company ( WFC): Provides retail, commercial, and corporate banking services primarily in the United States. Market cap at $220.15B, most recent closing price at $41.50.


3. JPMorgan Chase & Co. ( JPM): Provides various financial services worldwide. Market cap at $196.19B, most recent closing price at $51.87.


4. Bank of America Corporation ( BAC ): Provides banking and financial services to individuals, small- and middle-market businesses, corporations, and governments. Market cap at $154.31B, most recent closing price at $14.32.


( List compiled by James Dennin, a Kapitall Writer. Analyst ratings sourced from Zacks Investment Research, all other data sourced from Finviz.)