Returns as of 03/07/2022
Returns as of 03/07/2022
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Shares of Citigroup ( C -1.84% ) traded roughly 4.5% down in the first half hour of trading today after the stock got downgraded by Jefferies. As of 11 a.m. ET, Citigroup had recouped some of those losses and only traded down about 2.2%.
Since its highly anticipated investor day last week, analysts have been downgrading Citigroup for its weaker-than-expected medium-term financial targets.
The bank said it expects to achieve an 11% to 12% return on tangible common equity (ROTCE) over the next three to five years, lower than analysts had been expecting. ROTCE is the return on shareholder capital minus intangible assets, goodwill, and preferred equity.
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Jefferies analyst Ken Usdin changed his rating on Citigroup from a buy to a hold this morning. “The new ROTCE targets are loftier (11%-12%) and farther away (’24-’26) than our expectations,” Usdin said in his research note. Usdin is only forecasting Citigroup to generate a ROTCE of 8.3% in 2022 and then less than 8% in 2023, the bank analyst said, “making a leap to 11% seem very unlikely in ’24.”
Usdin said he is also worried about how the bank will be impacted by Russia’s invasion of Ukraine, particularly if the conflict impacts overall global demand and activity, because Citigroup is a very global bank. Also, Citigroup recently disclosed it has nearly $10 billion of exposure in Russia. Usdin also thinks the conflict could hurt Citigroup’s previously announced intention to sell its consumer banking divisions in Russia and Poland.
I’m a little confused by Usdin saying the 11% to 12% ROTCE target is lofty because I and most others seemed to be underwhelmed by the financial targets. But I did certainly find investor day disappointing and see Citigroup as a much longer-term play than I initially thought.
Still, I do think a lot of the pain has been priced in at this point. The bank trades at a very low valuation and pays a nearly 3.7% dividend yield at these levels. So if you can be patient, I still think there is value here.
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*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 03/07/2022.
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Calculated by Time-Weighted Return since 2002. Volatility profiles based on trailing-three-year calculations of the standard deviation of service investment returns as of January 1, 2021.
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