Citigroup: Value Play, Could Continue Strong 2022 Performance

Citigroup (C) is a financial services holding company that provides financial products and services. It operates through the following segments: Global Consumer Banking; Institutional Clients Group; and Corporate/Other. Citigroup was founded in 1812 and is headquartered in New York.

Shares of Citigroup underperformed the S&P in 2021 but have outperformed in 2022 with gains of approximately 6%. I am bullish on C stock. It is a value play now and could deliver strong gains in 2022 amid a global transformation plan, and rising interest rates in the U.S.

Citigroup Business News

Citigroup announced on Tuesday that it will exit its consumer, small business, and middle-market operations in Mexico, and that it will sell Philippines Consumer Bank to UnionBank of the Philippines.

On October 25, Citigroup announced “that it will wind down its consumer banking business in Korea as part of the strategic actions the bank is taking to refocus its Global Consumer Bank presence in Asia and EMEA on four wealth centers—Singapore, Hong Kong, the UAE, and London—and pursue exits from its consumer franchises in 13 markets across the two regions.”

The main goal of these important changes in global consumer banking operations is to release allocated capital, which is estimated at $7 billion.

The bank has also announced a $2-billion redemption of 3.142% fixed-rate/floating rate due in 2023, and a $1 billion redemption of 0.50% fixed rate notes due in 2022.

Q3 2021 Results

Q3 2021 GAAP EPS of $2.15 was a beat by $0.39, and revenue of $17.15 billion was also a beat by $223.95 million.

In Q3 2021, Citigroup reported on a year-over-year basis a decline of 1% for total revenues, a 48% increase in net income, a 9% increase in book value per share to $92.16, and a 10% increase in tangible book value per share to 79.07%.

Fundamentals – Risks

C stock has a Piotroski F-Score of 7, indicating a very healthy situation. Citigroup has been issuing new debt. Over the past three years, it has issued $11.3 billion of debt. 

Its D/E ratio of 1.41 as per the latest quarter is high, but the good news is that it has declined from 1.51 in FY 2020.

The bank has a forward dividend and yield of $2.04 and 3.1%, respectively, which is very attractive and seems safe, although the payout ratio of 19% is very high and has limited chances of getting higher without hurting the sustainability of the dividend.

It is positive that profitability key metrics such as net margin and ROE have increased on a TTM basis compared to their values in FY 2020.

Valuation

As per the latest financial results, C stock has an approximately 27% and 15% respectively discount compared to its book value and tangible book value.

This makes the stock cheap. It is also cheap based on its P/E Ratio (6.3x) compared to the U.S. Banks industry average (11.3x), and based on its P/B Ratio (0.7x) compared to the U.S. Banks industry average (1.2x).

Rising interest rates are expected to boost the banks’ net interest margins, which is also a supportive factor for this bank stock. C stock is among dividend stocks to monitor in 2022, having strong fundamentals and a very attractive valuation.

Wall Street Take

Citigroup has a Moderate Buy consensus based on eight Buys and seven Holds. The average Citigroup price target of $78.56 represents a 16.8% upside potential.

Citigroup has strong fundamentals, is very attractive now, and has already started 2022 with a strong performance. 

The upcoming earnings will be a catalyst, and a global transformation plan may prove to be the right move to add incremental value to shareholders.

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