Stock Analysis: Citigroup (C)

Stock Ratings: 1 = buy at current stock prices, 2 = buy on a 5-10% dip in stock price, 3 = sell on a 5-10% increase in stock price, 4 = sell at current stock prices to raise cash.  Ratings are based upon 12-18 month outlook on stock direction and not necessarily related to moves I make due to financial positioning.

Going to my financial stock and finally reviewing their quarter now, we find that Citigroup had a decent quarter - especially when compared to almost all of the other institutional banks.  The company achieved earnings of $1.31 per share on revenues of $18.5B and the tangible book value increased to $60.07.  This is in comparison of earnings estimates of $1.28 on revenues of $18.62B.  The miss on revenues is a factor, as top line misses do impact stock performance, however, this impact was also driven mostly from currency translation.

Since I'm talking about this weeks after the event, I don't think there's really a lot of value in providing the analysis I usually do.  Since reporting, the stock is up 4.5%, though it's worth noting that the finance sector ETF (XLF) is up almost 6% over that same time.  The company's growth of the tangible book value (TBV) is faster than the pace I expected, growing over a dollar in the last quarter.  This shows signs of strength in the company, despite the difficult environment due to low interest rates and high levels of regulation.  The company and the sector is not without risks, though.  The energy sector has suffered a crash, and as such, there is a lot of worry that the banks will be in a situation similar to the housing debacle - holding large amounts of loans that default due to bankruptcy and other similar events.  When asked, Citi stated that they feel their position is solid, with much of the portfolio as "investment grade," and they've also increased their loan loss reserves double the first half of the year.  In my mind, while the risk is there, the fact of the matter is that the regulations are there to prevent any significant damage and the last crisis is way too fresh in everyone's memory for it likely to happen again.  In fact, it's so fresh that I sense fear is taking a stronger stance than greed.  At this point, banks are very acute to risk and are prepared for any industries that might be hit hard with companies going out of business.  As such, while there's always some down side risk, I think it's small compared to the upside potential that lies in front of it over the next few years.  When will rates rise?  Not sure, but the company continues to grow its worth and position itself properly.  They've managed to deliver on their promises this year, and that's a big step forward as well.

At this point, I rate the stock a 1.  The stock is less than the sum of all it's parts by almost $7.  I will maintain my conservative $60.50 TBV by the end of the year, but expect it to be beaten at this point.  As such, I still believe the stock should be worth at least   That price is also my current price target for 2015.  Though the stock may not do a lot more right now, I see it as a valuable long term play for my portfolio.