Two years ago it was a well known fact that Citigroup was up to its proverbial neck in hot water. Out of all the financial institutions it seemed to be the most vulnerable with a seemingly insurmountable quagmire of toxic debt and liquid investments.
But two years can make a huge difference, as has certainly been the case in this instance as the company starts to float rather than flounder. After facing the challenge of staying in business head on, they put their heads together to come up with a new plan for the company.
Their success is such that Citigroup is one a handful of banks that seem to be emerging relatively unscathed from the recent disastrous foreclosure mess. Key competitors JP Morgan Chase, Wells Fargo and Bank of America have not seemed to fare so well.
An Evercore analyst, Tim Evnin, stated that “There was a general sigh of relief for Citi in that they seem to be getting things back on track.” This came after the company’s third quarter earnings results which reported a 2% revenue increase.
The news has certainly pleased ratings agencies, as they proved recently when they upgraded some of Citigroup’s credit ratings. Citi’s stock closed at the end of last week at $4.29, while the median price of independent analysts and 13 sell-side who have either reiterated or changed their targets since last month when Citigroup reported their earnings had remained at $5.00. The mean target is actually $5.06 in comparison to $5.07.
In a recent independent survey, out of 13 analysts six are positive, with six being neutral and just one being negative, which is definitely an improvement over the last couple of years. Goldman Sachs analyst, Richard Ramsden, last month raised his target price from $4.60 to $5.50 and the proceeded to add the bank to “Goldman’s Conviction Buy” list.
He based the move on the fact that he foresees a limited risk that Citi will sooner rather than later have to buy back any bad mortgage bonds and that there are signs that the United Stakes will exit any stake in Citigroup early in 2011.
In the meantime Citigroup continues to trade at discount to book ratios, which reflects a fundamental flaw apparent in the market prices of today. As the firm continues shedding its assets and poises itself for potential growth, value investors are realizing and recognizing earnings potential.