Citigroup’s (NYSE: C) Valuation Conundrum: Overprice or a Value Stock?

Citigroup’s (NYSE: C) stock is either one of the cheapest of the large financials around or perhaps the most expensive depending on what measure you make use of.

On a price to earnings basis comparing major banks’ stock prices versus their estimated earnings in 2010, Citibank is much more expensive than its contemporaries. Using consesus data that was compiled by Bloomberg, Citibank trades at 59 times its estimated 2010 profit, which is more than 3 times what Bank of America (NYSE: BAC) and 6.5 times what Goldman Sachs (NYSE: GS) trades at.

On a price-to-book basis, Citigroup is much cheaper than its peers. Citigroup and Bank of America are the only two major financial firms that trade below their book value. Other banks’ stocks trade at a premium compared to their book value, with JP Morgan Chase (NYSE: JPM) on the low end at a 9% premium to book and U.S. Bancorp (NYSE: USB) at a 92% premium to book on the highend. Meanwhile, American Express (NYSE: AXP) trades at a whopping 350% of its book value following a surge in its stock price during thel ast few weeks.

Citigroup’s relatively low price-to-book valuation reflects the massive deleveraging efforts on its balance sheet following the conversion of $58 billion worth of preferred stock, including a $25 billion stake owned by the U.S. government into common equity shares during the month of September. That transaction brought Citigroup’s leverage down to 50.8 at the end of the second quarter to 18.5 at the end of the third quarter, according to research from JMP Securities.

Citibank has also been selling assets placed under its Citi Holdings Units, recently raising $1 billion through the sale of its 93.5% ownership stake in a Japanese Call Center. Citibank has also divested itself from its Japanese investment operations at Nikko Securities.

Richard Bove, an analyst at Rochdale Securities, believes that these two metrics both present problems. Bove has been trying to restructure his valuation techniques when looking at bank stocks, as he believes that most traditional methods to value banks have not held up well over long periods of time. Bove commented that the only correlation that has been consistent is the inverse relation between non-performing assets and declining stock prices.

In a recent report, Bove estimated that Citigroup is trading at about 30.5 times its 2010 earnings and 9.7 times its 2011 earnings, higher than the multiples that he has for Bank of Ameriac and other firms. Bove says that he likes both stocks, but he likes Citigroup more because the bank is getting rid of its unattractive businesses over the next 4 yaers and focusing on a few core areas.