Is It Time To Invest In Citigroup?

Citigroup (C) is a multinational financial service company which has been in operation for over 200 years. The company is the third largest bank holding company in the U.S. by assets, and its largest shareholders include funds from the Middle East and Singapore. Citigroup has one of the largest financial service networks in the world. They are in a 140 country with 16,000 offices all over the world. Citi holds over 200 million customer accounts and is a primary broker for the U.S. Treasury Department. The company has built up enormous cash reserves of $420 billion in surplus liquid cash and government securities as of 2012.

Citigroup's shares have been hit hard by the crisis in emerging markets like China and Brazil.
Investors in the company perceive the bank has a proxy to whats happening in the emerging markets. The bank has the largest exposure to emerging markets unlike its competitors. I believe that Citigroup's risk in emerging markets is largely exaggerated and misunderstood. The emerging markets make up 40% of Citigroup's corporate portfolio. Traditional corporate lending represents only about 40% of Citi's  Institutional Client Group (ICG) loans in the emerging markets. The company's CFO  has said there will be a modest increase in general bad debt provision, however, he has also said that there has been no Net Credit Loss (NCL) so far.

The company is slightly increasing its general bad debt provisions as a protective measure from the potential of NCL's. I believe that Citigroup's exposure is limited to high investment grade Multi-National Companies (MNC's). The bank is only exposed to large multi-national companies operating in the emerging market. Investors really have little reason to be concerned. Investors aren't looking at the high quality of Citigroup's emerging market portfolio. The company focus is mainly on affluent segments which typically results in lower NCL's. Citigroup's exposure to emerging markets is diversified through numerous countries. There is no material risk to Citigroup from the emerging markets due to Citi focusing on better segments and spreading risk through multiple emerging markets.

Last year the Federal Reserve gave approval to Citigroup's stock repurchase program. The bank has recently announced that the board upped the repurchase program to $7.8 billion dollars. Citigroup's repurchase program is one of the largest ever done by one of the Big Four banks. Due to what is happening in emerging market and the Fed not raising rates, Citigroup's shares have fallen below $50/share. The volatile in the global market will work in the favor of investors of the company and the bank as well.

Citigroup will be able to repurchase shares at a lower price than its thought it would. The lower the share price goes the bigger the effects of the buyback will be. Citigroup will be able to reduce shares outstanding to 2.6 billion shares if shares stay below $50 or even go lower. The $7.8 billion repurchase program  plus its low valuation compared to its competitors makes Citigroup a great long-term investment.

Due to the sell-off, investors can get shares of Citigroup for $49/share which is only $2 dollars above its 52-week low. Citigroup produced operating earnings of $14.36 billion or $4.73/share. The company over the last 10-years has produced operating earnings of $20.10 billion or $6.61/share. Citigroup is selling for $10.5x its operating earnings and 7.8x its 10-year average operating earnings. The company should sell for 12x its operating earnings and 10x its 10-year operating earnings. At 12x operating earnings Citigroup would sell for $56/share and 10x 10-year average operating would sell for $66/share.
Published on Sep 28, 2015
By Cody Eustice
Cody is a freelance writer who has been writing financial articles for various sites for over a year now. He is a value investor looking for companies that sell for far less than their estimated business value.

Copyrighted 2020. Content published with author's permission.

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