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Donald Trump was inaugurated on Jan. 20 as the 47th U.S. president and started his second term with a flurry of executive orders, including one that implements a regulatory freeze. Trump has vowed he will support fewer regulations, and no industry would welcome this as much as the banking sector, which is among the most tightly regulated sectors.
Citigroup (C) and Wells Fargo (WFC) have faced regulatory woes much more often than their peers. But Citi is a transformation play that has rallied significantly since Trump’s November election and hit its 52-week high on Jan. 17. The stock, which has a healthy dividend yield of 2.8%, might continue its rally given its reasonable valuations and continued turnaround.
Citi Stock Forecast
70% of the analysts covering Citi rate it a “Strong Buy” or “Moderate Buy,” while the remaining 30% rate it a “Hold” or some equivalent. Citi’s mean target price of $89.08 is 10% higher than the Jan. 17 closing price.
Earlier this month, Wells Fargo analyst Mike Mayo — a long-time Citi bull — named the stock a “dominant pick” among large banks while raising his price target from $95 to a Street-high of $110. The brokerage is particularly bullish on Citi’s reorganization under CEO Jane Fraser. “Investors seem to underappreciate ... the improved management accountability after transition from 50 years of a global matrix structure to 5 lines of business,” wrote Mayo in a note.
Citi Stock Trades at a Discount to Peers
Notably, Citigroup trades at a discount to its large-cap peers and has a price-book-value multiple under 1x, sign of undervaluation.
However, its multiples have been low for a reason. Its international operations were not performing as well as expected, which, coupled with high overall expenses, took a toll on its profit margins. Citi’s return ratios have also been quite low compared to its peers. The company previously had a complex management structure and bloated headcount. To make things worse, it has been in the crosshairs of regulators multiple times. However, since she took over as the CEO in March 2021, Fraser has embarked on a turnaround plan.
As part of the pivot, Citi has reorganized its business structure, exited several international markets, and is working on increasing its profitability. Management has set a return on tangible common equity target of between 10% and 11% in 2026, which — while below the 11%-12% that it was previously targeting — is “a waypoint, not a destination,” per Fraser. She added, “We intend to improve returns well above that level and deliver Citi’s full potential for our shareholders.”
While Citi’s valuation discount to peers has somewhat narrowed over the last few quarters, it still looks undervalued compared to other large banks. If management can continue to show results under its transformation plan, Citi’s valuation multiple should inch toward the industry average, creating room for significant gains for investors. As Wells Fargo aptly said, “The significance of Citi inflecting from multi-year value destruction to value creation is in our view one of the greatest drivers for sustainable stock price outperformance.”
What Would Trump’s Policies Mean for the U.S. Banking Sector?
The banking sector has its wish list ready for Trump. According to a Reuters report, the industry is lobbying for weaker “Basel Endgame” capital rules, changes to the “Stress tests” that the Federal Reserve conducts every year, reduction in capital surcharge on global banks, and changes to leverage constraints.
During their respective Q4 earnings calls, Goldman Sachs (GS) and JPMorgan Chase (JPM) touched upon potential changes in regulations under the Trump administration. In response to an analyst question on what regulatory changes would be the “most impactful” for the bank, JPMorgan Chase CFO Jeremy Barnum said, "All we want is a coherent, rational, holistically assessed regulatory framework that allows banks to do their job supporting the economy, that isn’t reflexively anti-bank.”
Citi CFO Mark Mason also alluded to possible regulatory changes and said that the bank would determine its capital actions as the “regulatory environment evolves.” Notably, Citi has already announced a $20 billion share buyback authorization which makes sense considering the stock’s still-tepid valuations. If capital rules are eased under the Trump administration, the company would have the legroom to increase buybacks even further.
Citi’s Dividend Yield Is Still Attractive
After rallying 55% over the past 52 weeks, Citi’s dividend yield has narrowed to just 2.8%. However, the yield is still over twice what an average S&P 500 Index ($SPX) constituent pays and is better than other large U.S. banks like Bank of America (BAC) and Wells Fargo.
Overall, I continue to remain bullish on Citi stock despite it having rallied significantly over the last year, and expect more gains under the Trump administration. The stock’s 2.8% dividend yield remains a cherry on top as Citi continues to reward shareholders with share repurchases and generous dividends that Goldman Sachs expects to rise at a CAGR of 19% between 2024 and 2026.
