Citigroup: A Value Play

| About: Citigroup Inc. (C)

Citigroup (NYSE:C) has made my list as a solid value play. The government has finally sold off its entire position in the company and Citigroup is free to operate as a stand alone entity. The government’s equity position in Citigroup has been a black cloud for the bank since many investors did not want to buy the bank’s shares given the government’s oversight.

Now that the company is out of the government’s crosshairs, investors can focus on the strong results that Citigroup has been delivering recently. The banking giant is on pace to earn $88.8 billion dollars for the current year. That is 10.6% sales growth year over year. Revenue has grown 29.6% over the past quarter. Margins have been squeezed as the company has been disposing of assets. Profit margins came in at 3.3% and operating margins at 6.4%.

Return on equity has been very light at just 1% and return on assets has been nil. The stock is clearly a turnaround play as CEO Vikram Pandit has been making a number of the right moves over the past 18 months. Citigroup’s stock currently trades at $4.75. Citigroup has made a number of solid moves over the past few years that are making the stock more attractive to long term investors.

The company has increased its tangible book with book value coming in at $5.60. Citigroup has reduced its core holdings by nearly $150 billion dollars, reducing the firm’s leverage position at a time when other banks are holding riskier assets. Citigroup’s loan delinquencies and credit losses have been declining. The company’s capital position is far improved over where it was in 2009.

A share price rise to $5 will lead to increased buying from mutual funds and retirement plans. Many of these companies are barred from owning shares of any stock that trades below $5 per share. The company would likely benefit from becoming a core holding of fund companies.

Citigroup is projected to earn 39 cents per share for the current year and 46 cents per share next year. That would mean that the company’s shares are trading at 12 times this year’s earnings and 10 times next year’s earnings.

It is good to see earnings growth at Citigroup again considering that the company was plagued by negative earnings quarter after quarter in previous years.

Shares of Citigroup are cheap based on whatever metric that you want to use. The stock trades at just .8 times book value. The P/E ratio is right inline with industry averages. The stock is exceptionally cheap based on its future earnings growth.

Most banks are struggling to achieve growth in the high single digits. Citigroup’s growth is pegged at 18% for the current year and is expected to come in at 25% for the next few years. That’s pretty good for a company whose long term survival was in doubt just two years ago.

I have ranked Citigroup as a buy.

Disclosure: I am long C.

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Tagged: , Money Center Banks
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