Citigroup Stock Price Should Be $61, Goldman Sachs Says

NEW YORK (TheStreet) -- Citigroup (C) stock is undervalued and should be trading much higher, a Goldman Sachs (GS) report said Monday.

Goldman Sachs set Citigroup's price target to $61. As of midday trading on Monday, Citigroup's stock was trading around 54.80, up 1.3% from Friday's trading.

By Goldman Sachs' measure, Citigroup's stock has been slow to respond to positive news. The stock has been relatively flat since the beginning of 2015 while the KBW Bank Index BKX, which tracks 24 domestic banks, has increased 2% in the same period.

However, the bank has exceeded expectations elsewhere: Citigroup performed well on the Federal Reserve's stress test for banks this spring and posted respectable first quarter earnings of $1.51 a share in April. 

Citigroup raised its quarterly dividend to 5 cents a share in March, after receiving no objections from the Federal Reserve to its plans, and said it would repurchase $7.8 billion of its stock over a five-quarter period starting in the three months from April through June.

Citigroup CEO Michael Corbat reaffirmed the bank's decision to buy back its stock during Bernstein's 31st Annual Strategic Decisions Conference in New York last week.

"As long as our stock trades below book value, we're going to be primarily focused in terms of buyback," Corbat said. "It's the most accretive thing we can do for our shareholders."

It is a decision that Goldman Sachs applauds saying, "We think [Citigroup's] commitment to buy back shares below book value as well as its best-in-class free cash flow yield should provide downside support to the stock."

By Goldman Sachs' measure, Citigroup's free cash flow yield is expected to hit 10.9%, or 13.3% if deferred tax assets are included. Free cash flow yield is calculated by dividing the difference between a firm's operating cash flow and its capital expenditures by the firm's share price.

The chart below show's how Citigroup is expected to perform alongside its peers: JPMorgan Chase (JPM), Bank of America (BAC), Morgan Stanley (MS), PNC (PNC), Wells Fargo (WFC), and U.S. Bancorp  (USB).

 

 

 

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