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There seems to be a lot of controversy surrounding Citi (C) whether it is a good buy or not. I have taken the time these past couple of days to see what the buzz is all about and whether we should get in, get out, or sit tight. There is no doubt this stock has been a roller coaster ride the past couple of years; the question remains is now the right time to jump in or jump out. What I will attempt to explain is whether or not its run is truly up, or if this is just a bump in the road.

The Buzz

Citigroup Inc. 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. Citigroup has approximately 200 million customer accounts and does business in more than 160 countries. The current market price is $28.86. In March 2011, Citi announced a 1-for-10 reverse stock split and reinstated a much anticipated quarterly dividend, even though it was only at $0.01 per share. C plans on returning more capital to shareholders this year, likely in the form of share buybacks and higher dividends. Their revised capital plan is being reviewed by the Federal Reserve with a response expected by late summer 2012.

The Numbers:

ndex

S&P 500

P/E

8.08

EPS (TTM)

3.57

Insider Own

0.14%

Shs Outstand

2.93B

Perf Week

4.30%

Market Cap

84.62B

Forward P/E

6.23

EPS next Y

4.63

Insider Trans

29.29%

Shs Float

2.93B

Perf Month

9.94%

Income

10.70B

PEG

0.89

EPS next Q

0.97

Inst Own

62.93%

Short Float

1.95%

Perf Quarter

-23.63%

Sales

72.06B

P/S

1.17

EPS this Y

1.18%

Inst Trans

2.56%

Short Ratio

1.39

Perf Half Y

16.37%

Book/sh

62.00

P/B

0.47

EPS next Y

12.38%

ROA

0.57%

Target Price

40.64

Perf Year

-26.49%

Cash/sh

9.04

P/C

3.19

EPS next 5Y

9.05%

ROE

6.08%

52W Range

21.38 - 43.01

Perf YTD

9.78%

Dividend

0.04

P/FCF

1.76

EPS past 5Y

-38.53%

ROI

-

52W High

-32.90%

Beta

2.60

Dividend %

0.14%

Quick Ratio

-

Sales past 5Y

-4.94%

Gross Margin

-

52W Low

34.97%

ATR

1.10

Employees

263000

Current Ratio

-

Sales Q/Q

-3.40%

Oper. Margin

18.55%

RSI (14)

54.89

Volatility

3.01% 3.81%

Optionable

Yes

Debt/Eq

3.17

EPS Q/Q

-1.92%

Profit Margin

14.27%

Rel Volume

1.15

Prev Close

28.50

Shortable

Yes

LT Debt/Eq

1.65

Earnings

Jul 16 BMO

Payout

1.09%

Avg Volume

41.16M

Price

28.86

Recom

2.40

SMA20

7.18%

SMA50

-3.28%

SMA200

-3.75%

Volume

47,492,384

Change

1.26%

The Competition:

Price

Market Cap

Revenue

Net Income

C

28.86

84.62B

66.33B

10.70B

BAC

8.14

87.72B

76.84B

-1.31B

JPM

36.45

138.75B

90.49B

17.45B

HBC

44.39

176.26B

59.21B

14.65B

Industry

-

26.27B

11.18B

-

BAC - Bank of America

[[JPM]] - JPMorgan Chase

[[HBC]] - HSBC Holdings

The company's debt-to-capital has been higher than its Industry average for each of the past five years.

The Good

The one-year analyst price target is $40. This represents a 38.6% upside potential given its current price of $28.86. This price target is based on a 10x multiple of its forward EPS estimate of $4. This is a 15% premium to the 8.7X valuation of its peer JMP and a 21% discount to the 12.7x valuation of Bank of America (which I recommended here). Citigroup has a global distribution network which gives it an edge over its domestically focused peers. Its significant presence in the emerging markets enables the company to offer client access and insight into the highest growth areas of the world. Despite its financial troubles at the dawn of the recession, after governmental aid and several restructuring initiatives, Citigroup has achieved a solid capital base with a sizable amount of loan loss and provides great growth opportunities.

C's current forward PEG of 0.7 represents a 67% discount to its Bank Industry average and trailing P/E of 7.7 represents a 64% discount. Also, for fiscal year 2012, analysts estimate that C will earn $4.03. For the 1st quarter of fiscal year 2012, C announced earnings per share of $0.95, representing 24% of the total annual estimate. For fiscal year 2013, analysts estimate that C's earnings per share will grow by 13% to $4.55, analysts also predict a 1.2% increase in revenue, on a 3.2% advance in net interest income and a 2.2% decline in non-interest income for 2013. The stock has a four-star S&P rating with a bullish Moving Average Convergence/Divergence (MACD). The 10 and 21-day moving averages of $26.96 and $26.71 also signal a bullish pattern.

The Bad

One major argument about the opportunities for Citi is its Credit metrics. Although improving, they are at elevated levels and projected to remain that way considering the prolonged economic recovery and high unemployment rate with little to no change. Another negative factor is the shrinking of Citi Holdings' portfolio, which cuts into its earnings power. This places a hold on the upside potential of the stock given its decreasing size and income. There is also a growing concern among investors about management's ability to capitalize on growth initiatives due to its past failures to increase earnings successfully. There also still remains concern over the impact of financial reform and regulations on the company and its operations.

One formula I like to review in order to see how a company is doing financially is the debt/free cash flow ratio. Citi's number is 7.11 which means it would take longer than seven years for the company to pay off its debt, clearly not a good sign. All of these combinations combined with the unrest and turmoil of the eurozone, this stock appears somewhat risky.

Conclusion

It seems the pessimism mostly lies in the in the "pessimistic" expectations and outlook on the economy / financial sector while the optimism lies in the valuation. Fundamentally, Citigroup has several positive qualities. The company has a forward PE of 6.23 and is trading at over half the price of its book value. This company has promising analysts' predictions and is trading at an attractive price. I believe that the price is right for huge upside potential.

Source: Citigroup Inc: Buy Or Sell?