Wednesday, February 27, 2008

Citigroup - C

"Citigroup is organized into four major business groups: Global Consumer; Markets and Banking (M&B); GlobalWealth Management; and Alternative Investments. The Citigroup Global Consumer business includes banking services, credit cards, loans and insurance. The M&B business is in about 100 countries and advises companies, governments, and institutional investors on the best way to realize their strategic objectives. The GlobalWealth Management division at Citigroup is comprised of The Citigroup Private Bank, Smith Barney (private wealth management), and Citigroup Investment Research,and serves both private and institutional clients.”

Here are my reasons for averaging down:
-As a general rule I’ve found that the best time to buy large multinational blue chips is when everyone else hates them.
-Currently 45% of their revenue is generated outside of the United States and their current focus is to increase this number to 60%.
-They have the world’s largest credit card operation.
-In my opinion they are extremely well positioned to expand their international operations.
-Management is aggressively working to rebuild their capital base.
-The potential exists to unlock some value if Citi is broken up into separate entities.
-I believe long term this franchise will be a survivor

PE – 34.3
Estimated 2007 PE – 8.9X
Estimated 2008 PE – 6.8X
Current dividend yield – 5.13%
Price/Book – 1.1X

Other Facts:
-S&P recently downgraded them from 5 stars (strong buy ) to 3 stars (hold). However, they have a 12 month $35 price target
-Argus recently reduced their 1 year target price to $35 from $55 but are maintaining a buy rating.

Calculated Fair Value:
I’ve calculated the fail value of C (based on current information) to be approximately $32.81. My estimate is a little more conservative than both S&P and Argus however, from it’s current price there is a 31% upside.

As I mentioned in yesterday’s post, I initiated a half position in C last November and a bought another quarter position last week. I will continue to watch the developments on this name and am not opposed to initiating another quarter position in the future.

(Disclaimer: I currently own shares of C. However,I’m not your boss or your spouse so do you own research and make your opinions on when to buy or sell. Nothing I say should be bastardized or construed in any way to be advice.)

18 comments:

MG said...

Gutsy but, but long term probably a good one. With a price to book of 1.1 and those forward P/Es, it is hard to argue that the bank is really cheap. As time goes on, this will probably turn out to be a great buy point on C, as it will also be on BAC,WB, and WFC in my opinion.

Anonymous said...

Yeah let's see how Citi works out after this mess (http://www.youtube.com/watch?v=wvI3xZK34Tg) blows up later this year, possible (but unlikely) as early as March 18th.

Betting against Mr. Ackman is not a wise bet. The guy may not always accurate about timelines, but he is ultimately accurate about the outcomes, and the outcomes of this MBIA/AMBAC mess will make the sub-prime blow-up seem like fire-crackers compared to napalm. It will spread like wild-fire affecting all parts of the market.

That's right people, the jury is still out on Monolines.

http://tinyurl.com/23mdhe

Personally, I'd rather use my money (very cautiously) on the March 20th, Visa IPO. This is like Google (IPO) 2.0. Even if the entire financial market blows up in Q2 (not highly likely, but not completely out of the question), in the long term, this will be a near no-brainer. Just look at MasterCard, 500% up since 2006 IPO over a period of 18 months.

Betting in US banks right now is seriously risky business. Bernarke himself stated today that some small banks WILL fail... and you know how carefully he has to choose his words... usually it's a sign that things are even worse than this - time will tell.

Good luck to all,
Mr.4AM

Anonymous said...

I think buying banks now, is too early. We're barely 1/2 way through this financial mess. There's still some 200 billion worth of potential write-downs out there.

I suppose you can buy all the way down, but why not wait a little longer?

Don't get fooled by the 2 or 3 day upswings. FOr the most part, the market is going down - it's a bear market after all.

In bear markets, there is huge volitility and unless you're day trading, or are an expert in shorting, you might be playing a dangerous game. Buy banks long term - sure, after they are at least close to bottom. They currently are not. How can they be? The Mortgage ARMs haven't all reset yet and won't until later in 2009 - they are the ones having the snowball affect on the rest of the financial space.

Look at RBC this morning - 17% profit loss.
http://www.financialpost.com/story.html?id=340974

CIBC losing 1.5 billion in Q1 -
http://www.financialpost.com/trading_desk/financials/story.html?id=341552

I could post a long list of such events. Read my lips, its not over!

Anonymous said...

Bet you wish you had waited a couple days... Friday was not kind to Citi. The next 6-12 months you might need to buy some more to bring your DCA down, because I don't think we're at bottom yet, but I think on a 5 year outlook or longer, you'll do just fine. And I would expect them in 2009 to jack up that dividend back to the levels where it was befoer this mess.

Good Luck. - Jabney

MG said...

Citi is actually trading at 0.8x book value....crazy...

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QUALITY STOCKS UNDER 5 DOLLARS said...

Excellent post on citi.

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