Citigroup (C) and Credit Suisse Group (CS) are two financial stocks that received the most upgrades in the past three months. In this article, both stocks will be analyzed fundamentally and technically. Investing strategies will also be reviewed.
Citigroup is a leading global bank operating in more than 160 countries and jurisdictions. C was up 2.25% and closed at $44.58 on March 6, 2013. C had been trading in the range of $24.61-$44.75 in the past 52 weeks. C has a market cap of $135.47B with a high beta of 2.61.
Citigroup had received six upgrades and one new coverage from several analysts in the past three months. On Jan 22, 2013, Evercore Partners initiated the new coverage on C with an equal weight rating and a price target of $43.00. On January 17, 2013, Intra-day CLSA's Mike Mayo upgraded C from outperform to buy with a price target of $50.00 (from $46.00) following Q4 results. On January 4, 2013, Goldman Sachs added C to its conviction buy List with a price target of $49.00 (from $42.00). Goldman Sachs indicated that the shares are mispriced given its earnings power, especially considering further restructuring could result in an 11% ROTCE over time. On January 3, 2013, JMP Securities and Sterne Agee had both upgraded C to market perform and buy rating, respectively. On December 19, 2012, Morgan Stanley upgraded C from equal weight to overweight. Lastly, Meredith Whitney Advisory upgraded C from hold to buy, according to CNBC.
Analysts have a mean target price of $49.25 and a median target price of $49.00 for C. Analysts are estimating an EPS of $1.17 with revenue of $20.24B for the current quarter ending in March, 2013. For 2013, analysts are projecting an EPS of $4.63 with revenue of $78.54B, which is 1.80% higher than 2012.
There are a few positive factors for C:
- Lower debt/equity of 1.3 (vs. the industry average of 2.1)
- Lower P/E, P/B, and P/S of 17.5, 0.7, and 1.9 (vs. the industry averages of 19.6, 0.8, and 2.0)
- C has a total cash of $709.28B and a total debt of $557.39B. C has a book value of $61.57 per share.
- C generates an operating cash flow of $14.27B.
Technically, the MACD (12, 26, 9) indicator had turned to show a bullish trend on the last trading day. The momentum indicator, RSI (14), is picking up and indicating a bullish lean at 62.23. C is currently trading above its 50-day MA of $42.22 and 200-day MA of $34.16. The next resistance is $46.75, the R2 pivot point, as seen from the chart below.
How to Invest
With strong cash-generation ability, Citigroup's fundamentals continue to improve. C remains a buy at current valuation while trading under its book value. For bullish investors, a credit put option spread of May 18, 2013 $37/$39 put can be reviewed. Investors can also review the following ETFs to gain exposure to C:
- KBW Bank Portfolio (KBWB), 8.72% weighting
- Dow Jones U.S. Financial Services Index Fund (IYG), 7.88% weighting
- Financials Sector Fund (RWW), 6.63% weighting
- Financial Select Sector SPDR (XLF), 5.84% weighting
Credit Suisse Group AG
Credit Suisse Group is a global financial services provider. CS was down 0.04% and closed at $26.53 on March 6, 2013. CS had been trading in the range of $16.09-$30.40 in the past 52 weeks. CS has a market cap of $34.32B with a beta of 1.43.
CS received five upgrades and one new coverage from several analysts in the past three months. Canaccord Genuity initiated coverage on CS with a hold and CHF29 (USD $30.57) price target. On January 18, 2013, Morgan Stanley upgraded CS from equal weight to overweight. On January 16, 2013, Macquarie upgraded CS from neutral to outperform with a CHF 30 (USD $31.62) price target. On January 15, 2013, Exane BNP Paribas upgraded CS from neutral to outperform. On January 10, 2013, Nomura Securities upgraded CS from neutral to buy. Lastly, RBC Capital upgraded CS from sector perform to outperform with a CHF 27 (USD $28.46) price target on January 7, 2013.
There are a few positive factors for CS:
- Higher revenue growth (3-year average) of 41.4 (vs. the industry average of 15.0)
- Lower Price/Sales of 1.4 (vs. the average of 2.0)
- Lower Forward P/E of 9.4 (vs. the S&P 500's average of 13.9)
- CS has a total cash of $543.74B and a total debt of $396.68B. CS has a book value of $29.51 per share.
- CS currently offers an annual dividend yield of 2.95%
Technically, the MACD (12, 26, 9) is showing a bearish sign, but the MACD difference continues to converge. RSI (14) is indicating a bearish lean at 40.99. CS is currently trading below its 50-day MA of $27.60 and above its 200-day MA of $22.40, as seen from the chart below.
How to Invest
CS is currently trading at a reasonable valuation and below its book value. However, in the short term, it is important to see if CS can break above its 50-day MA to determine its near-term direction. For long-term investors, a safer entry range would be around $22.50-$23 if CS continues to show technical weakness.
Note: All prices are quoted from the closing of March 6, 2013. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.