Citigroup (C) is back in the news today as details about Vikram Pandit's recent firing have come out. The company is not one I have covered much, if at all, over the years. I have limited my financial equity positions to JPMorgan Chase (JPM), Wells Fargo (WFC), and State Street (STT) among the large banks over the last 12-18 months.
However, Citigroup is finally starting to see some positive catalysts to go with its cheap valuations. I decided to jump on this train and bought a small position on the dip this morning.
Here is a list of possible positive catalysts for Citigroup:
- Swapping a hedge fund manager CEO who has a "challenged" relationship with regulators for a 30-year banking veteran on good terms with the Fed is a positive thing for the company -- it doesn't matter how you slice it.
- With a new CEO in charge and recent solid results, I would expect the Fed to allow Citigroup to increase its dividend in early 2013.
- Consensus earnings estimates for both FY 2012 and FY 2013 have risen nicely over the last month.
- The housing recovery has started to look as if it's for real over the last few months. As one of the largest mortgage originators, this is a powerful tailwind for Citigroup.
- A Romney victory (50/50 proposition) would be good for the banking sector overall as regulatory pressure should decrease. In addition, Federal Reserve actions should be lessened, which would be good for interest rate spreads and a positive for banks' margins.
Here are four additional reasons why Citigroup offers solid value at under $37 a share:
- The stock sells for just 60% of book value, which is very attractive if an investor believes the housing recovery is real this time.
- Citigroup is selling for less than eight times forward earnings, a significant discount to its five-year average (14.3).
- The company has now beat earnings estimates for three quarters in a row. Revenue growth is set to resume in FY 2013, with analysts calling for a 10% increase in sales next year.
- Credit Suisse has an "outperform" rating and a $48 price target on the shares after Pandit's ouster. I would expect more positive comments from analysts over the next month as the dust settles on this change in leadership.
