Closingbell Gems #10
This Week's Most Undervalued Stock is Citigroup Inc.
Welcome back to ClosingBell Gems #10. This newsletter will cover macroeconomic highlights, industry insights, and our undervalued stock of the week: Citigroup Inc.
Here are the Top 5 Trending Stocks on Closingbell
🔎 Macro-Watch
The Bureau of Labor and Statistics (BLS) released their Consumer Price Index (CPI) report which highlighted a 9.1% increase in prices over the past year which was higher than the Dow Jones estimate of 8.8%
The U.S. Dollar recently reached 1:1 parity with the Euro with the Euro dropping as low as 96 cents to 1 U.S. Dollar
With a strong job market and unemployment continuing to trend downward, markets are predicting an increased possibility of a 100 bps rate hike in July
Unemployment Rate Over the Past Decade
Source: BLS.gov
🏛️ Industry Insights: Financials
This past week, Morgan Stanley and JP Morgan reported lower than expected earnings with both banks citing lower investment banking activity and JP Morgan citing an increase in reserves for loan losses/defaults
JP Morgan and Citigroup suspended its buybacks indicating the firms are preparing for a ‘range of economic environments’.
Citigroup topped earning estimates with the stock price up 13%+ intraday ballooning to $50 at Friday’s close
This week, financial institution groups: Bank of America, Goldman Sachs, and Schwab are set to report earnings
Citigroup (C)
Citigroup has a ClosingBell Valuation Index of 35% making it relatively undervalued against its peers.
Citigroup’s peers are considered the constituents of the Banking and Financials GICS group.
About Citigroup
Introduction
Citigroup Inc. is a universal bank that offers a wide variety of financial services such as commercial banking, asset and wealth management, and corporate/investment banking
Differentiator
Compared to its major U.S. banking peers, Citigroup differentiates itself because of its massive global footprint in emerging markets such as Asia and Latin America
Notable Developments
- In March of 2021, Jane Fraser took hold as the Chief Executive Officer (CEO) of Citigroup, making her the first woman CEO of a major U.S. bank
- Jane Fraser hit the refresh button as over the past year as she spearheaded Citigroup’s new “strategy refresh” following years of capital markets underperformance relative to its peers
- The strategy refresh includes making significant investments into technology and consolidating its businesses to become a more focused bank
📈 Price Forecasts by Analysts
The current consensus among 27 polled investment analysts is to BUY stock in Citigroup Inc.
The 27 analysts offering 12-month price forecasts for Citigroup have a median price target of $58.00, with a high estimate of $81.00 and a low estimate of $39.00. The median estimate represents a +1.63% increase from the last price of 44.28.
Notable Buyers
Berkshire Hathaway CEO: Warren Buffett
Purchased Citigroup in May 17, 2022 with $2.76B stake totalling 55.2M shares at an average closing price of $53.40
CIO of Bridgewater Associates: Ray Dalio
Bridgewater Associates is currently the largest hedge fund in the world. Ray Dalio purchased ~$20M in Citigroup at an estimated price range of $53-$61 per share
CEO of Citadel: Ken Griffin
Ken Griffin has purchased and sold Citigroup over the past year but holds an estimated $130M or 2.59M shares in the major U.S. bank
Market Metrics and Valuation
Banks and financial service groups typically utilize a different method of valuation compared to traditional stocks. Banks typically use one or more of the following metrics: Price to Earnings Ratio (P/E), Price to Book Ratio (P/B), and Price to Tangible Book Ratio (P/TB). Generally, the lower the ratios, the higher the “discount” the bank will trade at and therefore the more attractive the valuation.
✅ Citigroup has a Book Value of $92.95 per share implying a heavy discount from the current $50 a share price
✅ Citigroup has a Tangible Book Value of $80.25 per share
✅ Citigroup trades at a lower P/E than its peers
❌ The discount implied from the lower Price to Book and Price to Earning’s ratios may indicate poorer quality assets
❌ Citigroup’s return on equity is lower than its peers
❌ Citigroup’s suspended stock buybacks in preparation for harsher economic conditions
Quarterly Financial Highlights
✅ Revenue Increase
✅ Shares Outstanding Decrease
❌ Higher cost of credit and higher overall expenses
❌ Lower YoY net income and diluted EPS
📰 Recent Headlines
Marketwatch: Citigroup Shares Rise after Bank Beats Earning’s Targets
Citigroup Press Release: Citi to Exit Consumer, Small Business and Middle-Market Banking Operations in Mexico
Conclusion
Citigroup is a solid dividend stock that is trading at a discount to its peers with valuation metrics such as price to book and price to earning’s ratios. With the upcoming Citigroup strategy refresh, the future looks bright at an already discounted valuation for major U.S. banks. The combination of the new outlook and the backing from one of the greatest investors of all time, Warren Buffett, that makes Citigroup Inc. (C) our stock of the week!
If you’d like to learn more, we’ve included an Appendix with definitions of each of these metrics.
🥊 You should weigh in
Head over to Closingbell to Discuss Citigroup:
Discuss Citigroup on Closingbell
Post a rating with your opinion about Citigroup Is it a buy, sell or hold? Why do you think that?
Thanks for taking the time to read this! See you next week.
Regards,
Luca
CEO, Closingbell
For behind the scenes action, follow along here: twitter.com/lucamonk
Appendix: Metric Definitions
👉 Earnings Yield: A percentage measure of the return the company is making, based on its after-tax earnings and the current share price. Calculated as earnings per share divided by the price per share. Higher earnings yields can be interpreted as representing higher returns for an investment at the current share price.
👉 Trailing Dividend Yield: Your annual income from your investment in the company. Indicated yield represents trailing total annual dividends divided by current stock price.
👉 Price to Book Ratio: This ratio describes the relationship between the share price and the company's contributed accounting equity (plus retained earnings). Calculated as the price per share divided by the book value of equity per share. Other factors being equal, a lower price to book ratio can indicate a more attractive investment, according to some investors.
👉 Return on Equity: A measure of how productive the company's contributed equity is in producing its profit. Calculated as earnings divided by the book value of equity of the company. A higher return on equity is often thought by investors to indicate a more profitable company.
👉 P/E Ratio: Current stock price divided by trailing annual earnings per share. If a stock sells for $25.50 per share and has earned $2.55 per share this year, then it has a trailing P/E ratio of 10 ($25.50 / $2.55 = 10). This means the stock is currently selling