Citi's Stock Jump This Year Is Start of Surge, Analysts Say

(Bloomberg) -- Citigroup Inc.’s stock performance has been the envy of the U.S. financial industry this year, gaining 20% in defiance of falling interest rates, heightened trade tensions and mounting concern that the global economy may stumble.

Now, even after that advance and amid broader market turmoil, 90% of analysts covering the shares still recommend buying more -- making the company their top call among 24 major U.S. lenders in the KBW Bank Index.

It’s another odd situation for Citigroup’s stock, which last year tumbled 30% as a growing number of analysts urged clients to buy. Since then, as the bank outperformed almost every other lender in the index, more analysts have thrown their names behind it. They’re pointing to improvements in parts of Citigroup’s business and predicting that even if earnings stagnate, it can continue buying back billions of dollars of shares.

How far do they expect the stock might go? Another 31% in the coming year, according to 27 analysts tracked by Bloomberg who have updated their targets in recent months. It’s still the only bank in the index trading below its tangible book value.

“It got beat up so bad last year, especially in the back half of the year,” said Jeff Harte, an analyst at Sandler O’Neill, who’s focusing in part on improvements in the bank’s consumer business in North America. “The progress that people are looking to see from them, we’ve seen.”

Citigroup is focusing on cost cuts to improve profitability. In recent weeks, it started eliminating hundreds of jobs in its trading operations. The firm aims to trim 175 basis points this year from its efficiency ratio, a measure of how much it spends to produce a dollar of revenue, after falling short of its target for the metric in 2018. The firm reduced the ratio by 90 basis points during this year’s first half, compared with all of last year.

Last year, investors worried that the bank, which operates in more than 160 countries and jurisdictions, might get stung by a rout in emerging markets and by the brewing trade dispute between the U.S. and China. But since then, the firm has shown that it can profit by helping corporations shift business to minimize the damage of U.S. tariffs. Progress toward a new North American trade deal also has helped. The company’s Citibanamex unit is Mexico’s second-largest consumer bank.

Shareholders can’t be too happy with the stock’s performance in recent weeks, as it and U.S. markets pared gains amid a broader debate over whether equities are nearing the end of their years-long rally. In May, Chief Executive Officer Michael Corbat told investors he viewed the share price – then hovering around $63 – as too low. It closed at $62.72 on Friday.

“We think our stock is cheap,” Corbat said. “We're going to continue to buy.”

To contact the editor responsible for this story: Michael J Moore at mmoore55@bloomberg.net, David Scheer

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