It is no secret that Citigroup (NYSE: C) was on the ropes. At the height of the financial crisis, they were one of the most vulnerable banks, with high exposure to toxic debt and a basket of illiquid investments. Now though, nearly two years later, the company is starting to right the ship. The biggest challenge was staying in business (which they obviously did), and then creating a new strategy for the mammoth firm.
Citigroup is one of the few banks emerging unscathed from the recent foreclosure mess, which has embroiled the key competitors Bank of America (NYSE: BAC), JP Morgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC).
Tim Evnin, an analyst with Evercore commented that “There was this general sigh of relief for Citi in that they seem to be getting things on track” following the firm’s third quarter earnings results which showed a 2% revenue gain. Ratings agencies have taken kindly to the firm’s results and improved condition as well, recently upgrading some of Citigroup’s credit ratings. While Citi’s stock closed last week at $4.29, the median price of 13 sell-side and independent analysts who have changed or reiterated their targets since Citigroup reported earnings last month remains at $5.00. The mean target is $5.06 compared with $5.07.
In the analyst survey, of the 13 analysts, six are positive, six are neutral and only one is negative which is very telling improvement. Richard Ramsden, an Analyst at Goldman Sachs (NYSE: GS) raised his price target to $5.50 from $4.60 last month and added the bank to Goldman’s Conviction Buy list. Goldman based its move on a limited risk that Citi will need to buy back bad mortgage bonds and signs the US will exit its stake in the bank in early 2011.
Citigroup shares are still trading at a discount to book ratio, reflecting a fundamental flaw in the current market pricing. Value investors recognize the earnings potential of the firm as it continues to shed assets and sees it poised for growth.
