Citigroup Slowly Digging Its Way Out of Trouble

| About: Citigroup Inc. (C)

By Karen Schwartz

Last year, Citigroup (NYSE:C) was regarded as among the most vulnerable big banks. Now analysts are warming to the company, which has been relatively unscathed by the foreclosure mess dogging Bank of America (NYSE:BAC), JP Morgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and others.

Citi reported a 2% revenue gain in its third quarter earnings report and is steadily working its way through its problems, leading Evercore’s Tim Evnin to comment:

There was this general sigh of relief for Citi in that they seem to be getting things on track.

The earnings report led both Moody’s and Fitch Ratings to upgrade some of Citigroup’s credit ratings.

The median price of 13 sell-side and independent analysts who have changed or reiterated their targets since Citigroup reported earnings last month remains at $5.00. The mean target is $5.06 compared with $5.07. Citigroup closed Friday at $4.29.

Current 12-Month Price Targets of Selected Sell-Side and Independent Analysts

(Click to enlarge)

Of the 13 analysts, six are positive, six are neutral and only one is negative.

  • Richard Ramsden at Goldman Sachs raised his price target to $5.50 from $4.60 last month and added the bank to Goldman’s Conviction Buy list. Goldman based its move on a limited risk that Citi will need to buy back bad mortgage bonds and signs the US will exit its stake in the bank in early 2011.
  • Optionetrics’ Jody Osborne points to Goldman Sachs’ outlook raise on Citigroup as separating it from the pack when it comes to foreclosure issues. She writes:

Goldman feels Citi’s limited exposure to foreclosures will benefit the company.

  • The vote of confidence came as a boost to the bank, which also saw Mike Mayo, an analyst at CLSA, raise his price target on the company last month to $4 from $3.50, though he maintained an Underperform rating on it. For every $3 of profit the last decade, Citi gave back a dollar because of regulatory, legal, financial or accounting losses, observes Mayo. That means Citi’s main problem is how not to “mess up,” in Mayo’s view.

Meanwhile, the bank, which is still 12% owned by the government – it repaid $20 billion of bailout money in December last year – continues to pare down holdings, this time selling $570 million in investments.

There is a market for stuff that couldn’t be sold six or 12 months ago, and banks are taking advantage of it.

Several analysts going into the summer were upgrading the stock, and seemed willing to hold while the company’s other issues get sorted out.

  • Standard & Poor’s Erik Oja in August maintained a buy rating on Citigroup Shares, with a price target of $5.50. Even given the firm’s settlement issues and legal situation. He said:

Still, with the shares trading at a discount-to-peers valuation, we see rising long-term value in the franchise.

Citigroup has run its course concerning its troubled assets.

Disclosure: No position