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Summary

  • Legendary investor Leon Cooperman came to Delivering Alpha with stock ideas, one of which was Citi.
  • The stock is at bottom of the barrel prices right now with respect to 2015 earnings estimates.
  • Passing CCAR results are the goal for next year.

The last time I wrote about Citigroup Inc. (NYSE:C) I stated, "I'm not going to be buying the stock right now because I feel it is just too risky but I'll continue to let what I own ride the tide." Since writing the article, the stock has increased 4.33% versus the 0.14% drop the S&P 500 (NYSEARCA:SPY) posted. It's safe to say that I did ride the tide but without any additional shares. Citi is a global diversified financial services holding company, whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, which include consumer banking and credit, corporate and investment banking, securities brokerage and wealth management.

On July 14, 2014, the company reported second-quarter earnings of $1.24 per share, which beat the consensus of analysts' estimates by $0.19. In the past year, the company's stock is down 3.21% excluding dividends (down 3.14% including dividends) and is losing to the S&P 500, which has gained 16.53% in the same time frame. Since initiating my position back on November 19, 2013, I'm down 0.45% inclusive of reinvested dividends and dollar cost averaging. With all this in mind, I'd like to take a moment to evaluate the stock to see if right now is a good time to purchase more for the financial sector of my dividend portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 11.6, which is inexpensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 9.19 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.35 per share and I'd consider the stock inexpensive until about $80. The 1-year PEG ratio (0.66), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is inexpensively priced based on a 1-year EPS growth rate of 17.58%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 17.58%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.34%. Below is a comparison table of the fundamental metrics for the company for when I wrote all articles pertaining to the company.

Article Date

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

04Dec13

52.62

13.25

9.71

5.42

81

0.86

15.40

02Feb14

47.43

10.85

8.25

5.75

86

0.73

14.91

29Mar14

47.24

11.09

8.27

5.71

86

0.59

18.68

30Apr14

48.16

11.36

8.72

5.52

83

0.70

16.25

30May14

47.57

11.22

8.65

5.50

83

0.73

15.29

29Jun14

47.14

11.12

8.72

5.41

81

0.69

16.01

17Jul14

49.18

11.60

9.19

5.35

80

0.66

17.58

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 0.08% with a payout ratio of 1% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.9%, 8.5% and 8.2%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 0.08% yield of this company alone is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for when I wrote all articles pertaining to the company.

Article Date

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

04Dec13

0.08

1

0.8

8.2

8.6

02Feb14

0.08

1

0.9

8.8

7.9

29Mar14

0.08

1

0.9

8.6

8.2

30Apr14

0.08

1

0.9

8.5

8.2

30May14

0.08

1

0.9

8.5

8.2

29Jun14

0.08

1

0.9

8.5

8.2

17Jul14

0.08

1

0.9

8.5

8.2

Technicals

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle-ground territory with downward trajectory and a current value of 59.98. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line with the divergence bars increasing in height. As for the stock price itself ($49.18), I'm looking at $50.54 to act as resistance and $48.82 to act as support for a risk/reward ratio, which plays out to be -0.73% to 2.77%.

Leon Cooperman Gives Thumbs Up For Citi

The legendary investor and founder of Omega Advisors came out at CNBC's Delivering Alpha conference the other day pretty much saying that Citi should be a buy on any dips. The company has been held back of late due to failed Comprehensive Capital Analysis and Review results performed by the Fed but increases to capital returns at the company should be coming next year. While investors wait for the company to be able to return capital they can keep buying more shares as it is deeply discounted on 2015 earnings estimates. Granted 2015 estimates have been decreasing in the past couple months as I've shown in the fundamentals table above, but it is trading at 9.19 times 2015 earnings. Bank earnings hinge on net interest margins, but interest rates keep going down due to the flight to safety trade being put on ala the geopolitical drama taking place right now. However, once interest rates begin to take off, so will this banks earnings results.

Speaking Of Capital Returns

The company recently declared a $0.01 per share quarterly dividend. The dividend has an ex-date of July 31, 2014 and pay date of August 22, 2014 for a forward yield of 0.08%. The most important date however is the must own date. The must own date is the day before the ex-dividend date. You have to buy the shares on the must own date and carry them over into the ex-dividend date in order to be eligible for the dividend.

Conclusion

I wasn't too fond of the earnings report as I reported earlier this week, but I do believe higher interest rates are coming at the beginning of 2015 which should lift the stock. Fundamentally, I believe the stock to be inexpensively valued on next year's earnings estimates and on earnings growth expectations while sporting great near- and long-term earnings growth expectations, however, 2015 earnings estimates have been dropping the past couple of months. Financially, the dividend is nothing to talk about but it has much room to grow in the future. On a technical basis the stock seems to be experiencing bullish momentum, decreasing relative strength, and a good risk/reward ratio right now. I like the stock but I feel the bullish momentum will subside due to the current geopolitical issues going on right now and will not be buying right now.

Because I swapped out BioMed Realty Trust (NYSE:BMR) for Citi in my dividend portfolio, it is only fair that I provide an update from the swap-out date. From November 19, 2013, C is down 3.16% while BioMed Realty is up 13.56%, and the S&P 500 is up 9.27%. It is safe to say that I have suffered quite a bit from this swap.

(click to enlarge)

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: The author is long C, SPY. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Should You Like Citigroup Just Because Leon Cooperman Does?