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Summary

  • The consensus analyst price target for Citigroup is $58.68 while the stock currently trades at around $47.
  • Through a regression analysis of over 130 price targets set for Citigroup, we show that the overall outlook of the analysts has historically been on the bullish side.
  • We discuss the implications of this finding, and we also make our data analysis available for download in Excel.

Citigroup Inc (NYSE:C) currently has a consensus price target among analysts of $58.68. Most analysts have it as a "Buy" and you can see this from the chart below:

However, this is not unusual for Citigroup as they have generally had a "Moderate Buy" rating, according to TipRanks, which has charted the analyst opinions against the actual price over the last year.

(click to enlarge)

So how off are the analysts with respect to Citigroup? The price of Citigroup is currently at roughly $47 and the potential upside represented in the price targets of analysts would seem to indicate an increase of roughly 24%. However, what is the historical trend with respect to these price targets?

We put together a regression model that shows the trend of price targets and the subsequent average price. We took our data from the Analyst Ratings Network and accumulated over 130 different price targets over the last 2 years and we looked at how they fit with subsequent stock price averages immediately after the announcement. We did this for the stock price as averaged over 1 week, 1 month, 2 months, and 3 months.

We found the following:

Regression Statistics
1-Week1-Month2-Months3-Months
Multiple R0.7338340.7146630.7012350.697979
R Square0.5385130.5107430.4917310.487175
Adjusted R Square0.5348790.5068290.487460.482596
Standard Error4.5049984.3135384.2862334.145373
Observations129127121114
Coefficients
Intercept19.3036822.1651423.7876825.48539
Price Target0.4965960.4466970.4214210.395085

An important aspect here is the value listed for R Square or R^2. This value shows us how closely the analyst price targets can predict the behavior or explain the behavior of the stock price. As you can see there is a range of 53% accuracy with respect to the 1 week subsequent average and 48.7% with respect to the 3-month subsequent price average.

Here are the dependent variables, or subsequent 3-month price averages, plotted against the independent variable of analyst price targets:

(click to enlarge)

You might be able to tell from this diagram that the trend of the analysts is to shoot higher than the subsequent price when considered in the historical context. In other words, the analysts have been overly bullish during the last two years with respect to Citigroup. This is probably of no surprise to some, as the TipRanks chart above would have most likely indicated the same information.

One can also see that the analysts have been overly bullish with respect to Citigroup through an extension of the result of our regression model. If we were to utilize the price targets as a means to predict future outcomes, we can see that the recent price targets would have to be reduced in order to fall in line with the general trend of data.

DateAnalyst FirmPrice Target1-Week1-Month2-Month3-Month
5/21/2014HSBC56.0047.1147.1847.3947.61
5/21/2014MKM Partners56.0047.1147.1847.3947.61
5/30/2014Zacks50.0044.1344.5044.8645.24

This chart shows the price target times the coefficient plus the y-intercept. So for HSBC and MKM Partners, which both issued a price target of $56.00 per share, we would do the following to see how this might be better understood within the historical context and trend of prior data.

Revised Analyst Price Target = (56.00 x 0.4966) + 19.30 = $47.11

One could also do this for the 1-month, 2-month, and 3-month regression models.

Conclusion:

This is by no means a perfect methodology, but given the historical inability of analysts to properly identify a price target for Citigroup, this gives us a strong tool to interpret their price targets so that we can better understand the possible behavior in the stock.

You can download the analysis in excel right here. You can tinker with the models and improve upon them. Hopefully, this will help you interpret any future price targets released for Citigroup.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Citigroup Is Overly Favored By The Analysts