We came across a long thesis on Citigroup Inc (NYSE:C) on ValueInvestorsClub by MarAzul. In this article we will summarize the bulls’ thesis on C. The company’s shares were trading at $59.29 when this thesis was published, vs. closing price of $69.94 on Jan 2nd.
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Citigroup Inc (NYSE:C) is a global financial services company primarily offering cross-border banking needs for multinational corporates, investment banking and trading, and credit card services in the United States. The company is doing business in more than 100 countries and jurisdictions and organized its operations into five primary segments: services, markets, banking, US personal banking, and wealth management.
The bull thesis is based on the argument that the market underestimates future growth and profitability of the company which has simply set the bar too low – the stock trades at only 0.77x P/TBV multiple based on FY2024 data, which implies that market expectations are for the profitability to remain sluggish. The author argues that Citigroup Inc (NYSE:C) has to only reach 10% return on tangible equity (ROTE) for the stock to achieve a great return. This outcome seems realistic as the company is well-capitalized and has plenty of excess capital which provides a margin of safety. Another positive is the reversal of unrealized losses in the held-to-maturity book, which provides some uplift for TBV growth and equity. Furthermore, the author praises the company’s strategy of divesting complex business units and focuses on areas where they can at least earn the cost of capital. He believes C is following the right strategy of specializing in operations they excel at, which can boost profitability in the long-term. The IPO of the Mexican consumer division planned for 2025 is expected to be an important step in this direction.
All in all, the author believes that a base case scenario in which Citigroup Inc (NYSE:C) reaches 10% ROTE in 2 years would put the company’s earnings at $10.00 per share, which coupled with a 10.0x target multiple would yield a stock price of $100.00 per share, or 43% upside from the current market price. However, the most optimistic scenario presents a stock price as large as $150.00 per share plus dividends, implying at least 114% upside.
While we acknowledge the potential of C as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than C but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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