Citi at Record Lows; Expecting 30% Growth This Year

Citigroup, Inc. (NYSE: C), a multi-bank holding company, provides various financial services to customers in the United States and internationally. The company's Global Consumer segment offers banking, lending, insurance, and investment services. As of March 31, 2007, this segment operated through a network of 8,140 branches, approximately 19,100 automated teller machines, 708 automated lending machines, and the Internet. Its markets and banking segment provides various investment and commercial banking services and products, which comprise investment banking and advisory services, debt and equity trading, institutional brokerage, foreign exchange, structured products, derivatives, and lending.

Citi is off of its 52-week high by more than 40% due to the sub-prime and liquidity crisis that has gripped Wall Street banks. While the concern is more than justified, those who are patient can buy stock in this quality establishment, which has been around since 1812, at levels not seen since early 2003.

Long-term prospects

While it is true that many banking establishments, including competitors of Citi, face bankruptcy as they are left holding many mortgages which cannot be sold, it is also true that this is, in the long run, good for shareholders of Citigroup. This is especially true if you haven’t bought yet, and are looking to get in.

See, all those banks that compete with Citigroup, those that are going to go bankrupt will forfeit some or their entire market share to the bigger banks. Those that don’t go bankrupt will certainly not be very focused on gaining market share in these troubling times. Citi is one of the largest banking institutions in the world. It might take a while to become apparent, but it is virtually certain that Citi will benefit and in fact grow the bottom line.

Not only will they gain market share in the US, but they also stand to hedge the US economy by increasing operations and investments in foreign markets. The world economy has grown rapidly since the last credit crisis and is able to support the global economy, even if the US is sinking.

Leadership overview

Citi recently fired its CEO, Charles Prince, who led the company into this mess. Charles Prince had a history of acquisitions that were both reckless and expensive, and rarely acted in the shareholders interest. It is quite comforting to know that the board felt the same way and forced him out. Having a board that acts in the best interest of the shareholders is a mark of a great company.In the interim, Win Bischoff, a chairman of Citi Europe will take the helm. There’s little transition risk here, as he was already accustomed to Citi.

As they begin the hunt for a new CEO, Citi will leverage its name and size to attract the best of the best. They certainly have deep pockets and a vast pool of talent. The new CEO might even shake things up a bit, sell off low margin parts of Citigroup, and reward the shareholders with increased dividends and buybacks. At these depressed levels, buybacks would be a great move.

Financial strength

With almost $1 trillion in cash - over $210 per share - as of the most recent quarter, Citi will survive and thrive in the new banking world. There will be a few more quarters of write-downs, no doubt, but with changes at the helm, changes in how they measure risk, and regulatory help, Citi will do well.

There's even a great opportunity to purchase struggling companies with that cash to further increase market share. Consolidation could very well occur.

Dividend record and rate

Not only do you get Citi at a price that is near record lows, you also get a 6%+ dividend which management has stated, in their most recent conference call, faces no immediate danger of being lowered.

52-week target

The stock price of Citigroup, in 52-weeks, will be higher than it is today. While it is difficult to predict how much higher, by analyzing their future growth prospects and growing market share, Citi shares could easily approach $42 per share. This represents over a 30% gain from today’s levels, which includes the dividend.

Disclosure: none

Comments

[geniuspup:]

better to short this stock instead

2007 Nov 26 04:04 PM

[User 125708:]

Still some downside risk from today's price of $30 and change, but agree, this is a fabulous investment at the moment for many of the reasons stated. With a 3-5 year outlook, buy half the amount you plan now and see what happens over the next few months. If it drops yet lower, buy more at $26 or $27. Abu Dhabi just put 7.5 billion on the table betting on a solid rebound between 2010 and 2012 for Citi. In the meantime, collect your dividend.

2007 Nov 27 07:46 PM

[Ryan Freund:]

Yikes, got this one seriously wrong. I've learned my lesson and will not make the same mistake again.

2008 Apr 16 01:35 PM

[Goldner:]

who wrote this article? They should be fired

2008 Jun 26 11:59 AM