Citigroup Inc (NYSE:C) has more than doubled in price over the last year, as U.S. stocks generally have done well and investors have become more confident in the safety of the bank’s assets. The stock still trades at a considerable discount to the book value of its equity, with a P/B ratio of 0.8. According to the results that Citigroup Inc (NYSE:C) has released for the second quarter of 2013, non-interest revenues rose strongly during the quarter versus a year earlier and with the bank’s operating expenses actually coming in lower than they had been in the prior year period earnings were up by 23%. This was also a small increase in net income on a q/q basis.
On an adjusted earnings basis, Citigroup Inc (NYSE:C) earned $2.57 in the first half of the year and if we annualize that figure we end up with a P/E multiple of only 10. Considering that the price-to-book multiple suggests that the stock is undervalued compared to its assets, investors could certainly make the case that Citigroup Inc (NYSE:C) is still a prospective value stock. Even if the improvement in its earnings compared to the first half of 2012 is mostly a one-time increase, and bottom-line growth is limited going forward (which investors should probably assume in the name of conservatism, particularly with the lower profit growth rate relative to Q1 of this year), as long as the company sustains its current business it would be attractive in earnings terms.
Other large banks include Bank of America Corp (NYSE:BAC), JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), and Morgan Stanley (NYSE:MS). Morgan Stanley (NYSE:MS) is more of an investment bank, but we’d noted that it was non-interest activities driving Citi’s recent growth and it therefore is a reasonable peer. Indeed, Morgan Stanley (NYSE:MS) recorded more than 20% revenue growth last quarter compared to the second quarter of 2012 and net margins were wider as well. It has also more than doubled in price in the last year, and currently the forward P/E is 11. It and Bank of America Corp (NYSE:BAC), however, have seen weak earnings over the last year as a whole. The sell-side is optimistic on Bank of America Corp (NYSE:BAC): it too trades at 11 times consensus earnings for 2014, and its second-quarter results were good as well. Its P/B is actually lower than Citi’s, at 0.7, though we’d have to look into how much further its earnings have to rise in order to hit analyst targets.
Investors are a bit more confident in JPMorgan Chase & Co. (NYSE:JPM)’s book values; that bank’s P/B ratio is 1.1. However, that bank is priced at a discount to Citi on a trailing basis: the trailing earnings multiple is 9, and its revenue and profits have also been growing at double-digit rates from their levels a year ago. While it has some legal issues JPMorgan Chase & Co. (NYSE:JPM) therefore looks fairly interesting from a value perspective as well. Wells Fargo & Co (NYSE:WFC)’s price-to-book ratio is a relatively high 1.6, and, at least going by analyst expectations, it is also among the priciest of these banks in terms of its forward earnings with a P/E multiple of 11 on that basis. Wells Fargo & Co (NYSE:WFC) does have a reputation as a somewhat safer bank, and clearly it is able to generate income from its assets more effectively than its peers, but it seems to be a lower priority target for value investors.
It’s possible that large financials won’t be able to sustain their current level of earnings in the future, particularly if monetary policy becomes less accommodative, but at least at this point the industry is characterized by low earnings multiples (and low to even P/B ratios in some cases as well). It’s therefore certainly possible that Citigroup Inc (NYSE:C) and its peers have further upside potential at current prices.
Disclosure: I own no shares of any stocks mentioned in this article.
