Opinions
Brooke Thackray
Citigroup Inc.
C-N
COMMENT
Dec 19, 2017
Stock price when the opinion was issued
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Owns several US banks. The yield curve is steepening and the regulatory backdrop is now more favourable to the banks. The post-2008 safeguards have built huge capital in these banks and is starting to be released. Citi trades at a 24% discount to tangible book value which will compress and catch up to peers.
(Analysts’ price target is $90.30)Financial sector offers great promise, though it's reacted to current markets by pricing in a potential recession. Slower economic growth would not be good for banks. Absent a recession, with consumer confidence returning and unleashing M&A, the sector provides a good opportunity.
A less expensive choice further down the food chain from the likes of JPM.
Likes the valuation of 8x PE, and growing ~24%. Tailwinds from Trump administration with bank de-regulation. Benefiting from years of cleanup and cost cuts. Earnings up 21% in last quarter. Fixed income was up 8%, equities were up 23%.
Yes, the tape can toss you around if we go into a bear market. And yes, this name would sell off along with all the other banks. But at this price, with this level of growth, it's a really good bet on risk/reward. Yield is 3%.
Has done extremely well. They benefited from a number of different things, including rising rates in the states, but they are also well exposed heavily; more so that the other banks, to international markets, approximately 45% of their earnings. That’s good and bad. Last year in 2017 it actually outperformed at lot of the other banks. Seasonal periods for banks last until April. It’s performing well. From a fundamental perspective, though, US dollars tends to pick up in January. If we see stronger US dollars in January and February, you might see this bank underperform against the other banks because of its emerging markets exposure. Citigroup is fine. Just watch it and the US dollar as well.