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Summary

  • The stock has increased in value by 5.61% in the past month and a half while the S&P500 has increased by just half as much.
  • Continued low interest rate environment, low trading volumes, and government nuisances should be going away shortly and earnings should rise accordingly.
  • The stock remains extremely undervalued based on 2015 earnings estimates and growth expectations.

The last time I analyzed Citigroup Inc. (NYSE:C) on July 18, 2014, I stated, "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." But I did purchase just a couple of shares a couple weeks later, right before the ex-dividend date. Since the article was published the stock has increased 5.61% versus the 2.24% gain the S&P 500 (NYSEARCA:SPY) posted. 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 up 7.51% excluding dividends (up 7.59% including dividends) and is losing to the S&P 500, which has gained 22.6% in the same time frame. Since initiating my position back on November 19, 2013, I'm up 5.39% 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 17.67, which is fairly 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 9.68 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.37 per share and I'd consider the stock inexpensive until about $81. The 1-year PEG ratio (0.37), 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 47.32%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 47.32%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 11.19%. 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

01Sep14

51.96

17.67

9.68

5.37

81

0.37

47.32

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 0.5%, 4.5% 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

02Sep14

0.08

1

0.5

4.5

8.2

Technicals

(click to enlarge)Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory with a current value of 67.92. 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 decreasing in height indicating the bullish momentum is getting tired. As for the stock price itself ($51.96), I'm looking at $53.48 to act as resistance and $50.56 to act as support for a risk/reward ratio which plays out to be -2.69% to 2.92%.

Are Banks Turning The Corner?

So we all know during the past year or so that the "risky" banks haven't really been participating in the market rally we've been experiencing. All that seems to be changing as both Citi and Bank of America (NYSE:BAC) have been rallying in the past month. Richard Pzena favors the "Too Big To Fail" banks as he thinks it's the low interest environment that's keeping the lid on the banks. In addition to low interest rates, banks are experiencing low trading volumes and continued government nuisances which are keeping earnings down. Once these three issues begin to filter out we should be seeing normal earnings growth for each of the "risky" banks. Just from the fundamentals table I've provided above we see that earnings estimates for Citi have begun to increase for next year.

(click to enlarge)

Conclusion

Fundamentally, I believe the stock to be inexpensively valued on next year's earnings estimates and on earnings growth potential, while 2015 earnings estimates have increased 0.37% in the past month and a half. Financially, the dividend is nothing to speak of and I believe it can grow right now, but we have to wait for the next round of CCAR results. The one thing that troubles me though is the lower financial efficiency ratios. On a technical basis the risk/reward ratio shows me a bit more reward than risk but the stock is near overbought territory with tiring bullish technicals. I continue to like the stock but won't be buying any shares in the name right now. At this moment in time, it's looking like it is going to be another couple of months before I do.

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, Citi is up 2.29% while BioMed Realty is up 17.53%, and the S&P 500 is up 11.75%. 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!

Source: Citigroup Is Finally Behaving Well As A Stock