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Here is a look at how Citigroup (NYSE:C) fares in ModernGraham's opinion, based on an updated and modernized version of Benjamin Graham's requirements of defensive and enterprising investors from The Intelligent Investor:

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass all 6 of the following tests: Score = 2/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3-year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3

  1. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

Balance Sheet – 9/30/2013

Total Debt $221,593,000,000
Total Assets $1,899,511,000,000
Intangible Assets $32,566,000,000
Total Liabilities $1,698,665,000,000
Outstanding Shares 3,033,000,000

Earnings Per Share

2013 (estimate) $4.46
2012 $2.49
2011 $3.59
2010 -$7.60
2009 -$64.20
2008 $7.20
2007 $42.50
2006 $38.20
2005 $32.60
2004 $34.20

Earnings Per Share – ModernGraham

2013 (estimate) -$2.42
2012 -$7.81
2011 -$9.88
2010 -$10.00
2009 -$3.71
2008 $28.00

Conclusion:

Citigroup Inc. presents a rare situation. The company had a large loss in 2008 due to the financial meltdown, and this loss is still affecting the analysis through the ModernGraham model. It would be very easy to modify the model at this point to eliminate the effect of the 2008 loss, under the rationale that it was an extraordinary event that is not likely to be repeated. However, that would in essence ignore the fact that the company did lose money in 2008, at a rate that is so high that the company is still recovering from it. One cannot simply overlook a loss, regardless of the circumstances. Losing money is losing money, and one of the 7 Key Tips to Value Investing is to not lose money, whether that is at the corporate level or at an individual shareholder level. Therefore, until the EPSmg (normalized earnings) have recovered from the significant losses of the 2008-2009 period, Citigroup will not be considered suitable for either the Defensive Investor or the Enterprising Investor.

Disclaimer: The author did not hold a position in Citigroup Inc. (C) at the time of publication and had no intention of changing that position within the next 72 hours.

Source: ModernGraham Valuation Of Citigroup