Slow And Steady Wins The Race - Citigroup Could Now Be A Strong Long-Term Buy

| About: Citigroup Inc. (C)

Banks receiving tax payer money from the much-hated bailout haven't been receiving a lot of love of late. While many have since recovered and begun to be profitable, others have not performed well at all. One particular bank that I had recommended as a shorter-term investment, and am considering right now for the long term, is Citigroup (NYSE:C). I believe it may be a possible long-term consideration for investors with a five- to 10-year horizon.

Citigroup has been struggling since the March 2009 lows before it conducted its 1-for-10 reverse stock split, and has been continuing to struggle since then. However, pressures of investment banking have been felt by Morgan Stanley (NYSE:MS) and of course JPMorgan Chase (NYSE:JPM). The banks were leaders early this year, but have been strong laggards since April. Citigroup is up 11 % year to date but was down nearly 45% during 2011. Overall it has been an awful 18 months for the stock. This past month the stock has really moved, up nearly four points (15%) since July 23.

Shares of Citigroup are being traded for almost half of their reported June tangible book value of $51.81. They are also trading for approximately six and half times the Street's consensus 2013 EPS estimate of $4.54. For this year, the consensus EPS estimate is only $4.09, so analysts are looking for EPS growth of 11% year over year. In the second quarter, Citigroup reported earnings of 95 cents a share, or $2.9 billion, which was essentially equivalent to Q1 reported results. This second-quarter report was a significant decline from $1.09 a share (about $3.3 billion in earnings) reported in the comparable quarter a year ago.

While there was a decline in the earnings, things are starting to look up longer term for Citigroup. It reported a total of $409 billion in consumer loans and $246 billion in corporate loans at the end of the quarter. While this represents a 2% decline in consumer loans, it also represents a 6% growth in corporate loans for an overall 1% growth in the loan portfolio over the previous quarter. International exposure has been a major concern and in the short term it is definitely a headwind. However, for those investors with a longer-term five- to 10-year outlook, the stock could be a buy at these levels as analysts see a large opportunity for great returns.

First, analysts see Citi Holdings Capital eventually being slowly released over time. Second, analyst Richard Staite pointed to the fact that it has approximately $64 billion in deferred assets. Deutsche Bank analyst Matt O'Connor has a price target of about $40 for Citigroup shares and he believes that the company will earn $4.05 per share this year, followed by $4.64 of earnings in 2013 (excluding items). The second quarter was a positive sign, as he recently stated that "the second quarter 2012 was a step in the right direction for Citigroup being able to deliver respectable earnings in a tough macro and capital markets environment."

Citigroup also pays a dividend, which if increased to competitive yields of other banks could create a floor of support underneath the stock. At 2 cents per share quarterly, there is no such floor at this time. However, Citigroup is aiming to hike its dividend for the first time since the 2008 financial crisis. Vikram Pandit said he expects to start discussing a larger return of cash to investors by the end of the year in the form a dividend increase. The CEO told the U.K.'s Sunday Telegraph that "I believe we will be in good shape and have the capital to be able to do that by the end of the year." Such an announcement of an increased dividend should be sufficient to send the stock up several points on the day of that announcement.

With positive analyst commentary, decent quarterly results, expected increase in performance into next year, the price to tangible book value, and the possibility of a real dividend being paid, I believe Citigroup represents a potential stock to consider for capital appreciation over the next few years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.