Citigroup Inc (NYSE:C) shares have lagged the S&P 500 and many of its banking peers so far in 2022, but Bank of America analyst Ebrahim Poonawala said Monday that a recent meeting with Citigroup CFO Mark Mason has him feeling extremely optimistic about the stock's outlook.
Poonawala said Citigroup has a large-scale, globally diversified business, and Citigroup management is well aware that it needs to earn and maintain investor credibility.
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For now, Poonawala said Citigroup's near-term results will likely be noisy thanks to the macroeconomic backdrop of rising interest rates, capital market volatility and a slowdown of mergers, acquisitions and IPOs. In addition, Citigroup also has $9.8 billion in assets with exposure to Russia.
Despite the unpredictable market, Poonawala said Citi management will continue to focus on de-risking the bank and maintaining its commitment to returning capital to shareholders.
How To Play It: Ultimately, this de-risking process will create better EPS visibility for investors over the next 12 to 18 months, which Poonawala said could be a positive catalyst for the stock. During that time, Poonawala said announced business exits will unlock capital for buybacks, and Citigroup should make progress on addressing its regulatory consent order.
"At 0.7x P/TBV, sub-9x P/E (3.6% dividend yield) the stock offers an attractive risk/reward to add exposure to a self-help story that is less macro dependent and where investor sentiment is weak," Poonawala said.
Bank of America has a Buy rating and $90 price target for Citigroup's stock.
Benzinga's Take: For the most part, Citigroup shares have shown no signs of life for the past five years, so it's understandable that investors are hesitant about the stock or its management. However, with a forward earnings multiple of just 7.3, the stock's valuation may provide downside support.
Photo: Courtesy of Håkan Dahlström on Flickr
