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Stock Analysis & Ideas

Citigroup Has Fallen into Value Territory

Citigroup (C) is a diversified financial services company providing consumers, corporations, governments, and institutions of all sizes globally with a wide range of financial products and services.

The company’s services comprise consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management.

Citigroup stock has declined notably over the past couple of months. While most stocks have been under pressure during this period, the company’s exposure to Russia has further raised investor concerns.

However, Citigroup continues to produce strong profits and return substantial levels of capital to shareholders. Following the recent decline, I find Citigroup’s stock rather attractively priced. Additionally, with shares offering a strong combined investor yield, the current price levels likely offer a worthy entry point for investors. I am bullish on the stock.

Latest Developments

While Citigroup revealed a $5.4 billion exposure in Russian assets in its latest filings, the market has likely overreacted on this news. This amount may be enough to make a headline. However, it only represents less than 0.3% of the bank’s total assets.

As far as its recent performance goes, Citigroup wrapped up a record year with its Q4 results. Revenues grew 1% year-over-year, mainly driven by strong performance in Investment Banking in the Institutional Clients Group and increased revenues in the Corporate segment.

Adjusted earnings per share grew 4% year-over-year to $1.99, which was largely powered by a decrease in outstanding shares. Specifically, the company repurchased $7.6 billion worth of stock during the year. Net credit losses came in at $866 million in Q4, a notable decline from $961 in the previous quarter and well below the $1.47 billion from the previous year.

Management also said they were selling four of the company’s business units in Southeast Asia to United Overseas Bank in order to steer Citigroup’s structure towards Personal Banking, Wealth Management, and the Legacy Franchises segments.

Capital Returns & Valuation 

Assuming Citigroup’s stock buybacks hover close to $8 billion per annum, the company would be buying back around 7% of its stock at its current market cap.

This implies a great buyback yield. Now, add Citigroup’s dividend yield of 3.6%, and we get a combined investor yield north of 10%. Even if Citigroup’s growth prospects appeared poor, that would make for satisfactory capital return levels.

Further, Citigroup is expected to achieve earnings per share of $7.10 this year, suggesting a forward P/E of just 8.1. I find this multiple quite enticing combined with the stock’s rich capital returns.

Wall Street’s Take

Turning to Wall Street, Citigroup has a Moderate Buy consensus rating, based on nine Buys and nine Holds assigned in the past three months.

At $74.59, the average Citigroup price target implies 29.9% upside potential.

Conclusion

Overall, I consider Citigroup a value stock following the stock’s recent decline. Worries regarding the company’s exposure to Russia are likely overstated, and the company’s performance remains rather strong overall.

Combined with a powerful investor yield that provides investors with an above-average margin of safety at the stock’s current level, I am bullish on Citigroup.

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