Citigroup (C), among the rest of the U.S. money center banks, remains one of our most favored banks. The recent insider buying activity by one of the bank's directors, William Thompson, prompted Forbes to place it in its weekly top insider buys. As the directors are considered to have greater insight into the company's future, this insider activity shows the director's confidence in the bank's future growth in the challenging macroeconomic environment. This, combined with cheap relative valuations, supports our bullish investment thesis on the bank. Therefore, we reiterate our buy rating for the stock.
Director Thompson William purchased 6,850 shares of the bank at an average price of $35.93 per share, costing him a total of $248,000. Thompson is not alone. During the past 3 months, 16 buy transactions were conducted by insiders, involving over 8,600 shares of Citigroup.
Michael Corbat, continuing the strategy of former CEO Pandit, announced the elimination of 100 retail banking poitions on New York's Long Island. This is the latest in the bank's attempt to curtail its costs and focus on improving operational efficiency.
Recent quarter's performance review:
The bank reported better than expected earnings for the third quarter after adjusting for one-time items. The reported adjusted EPS of $1.06 per share exceeded its estimate of $0.96 per share. While revenues of $19.4 billion remained 1% above consensus mean expectation of $18.8 billion. The results benefited from growth in the core business and improved revenues from fixed income trading. With the renewed focus on improving the bank's operating performance and relations with the regulator to qualify the upcoming round of stress test and its continuous expansion into emerging markets, we believe the bank will benefit from the recent management change and has tremendous potential to grow its bottom line in the coming quarters.
The consensus mean price target for the stock - currently trading at $36.16 - is $42.85. Currently, 16 of 34 analysts recommend their investors to buy the stock, while six have an overweight rating. Three analysts recommend investors to sell the stock.
The bank has attractive valuations as compared to its peers in the U.S. money center banks. The Citigroup's stock, that has seen over 67% appreciation in price since the beginning of the year, trades at a 43% sizable discount to its book value, compared to 19% premium to the book value for Wells Fargo (WFC).