Bove Makes Our Case on Citigroup (C)
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Rochdale Securities banking analyst Dick Bove was critical of a weekend New York Time's article on Citigroup (NYSE: C), saying the writers missed the point and that "Citigroup is already dead."
Bove explains, "A small portion of what was Citigroup, called Citicorp, will arise as a very successful company. But Citicorp is not Citigroup and Citicorp is not too big to fail."
Bove says Citigroup is being liquidated, and the ongoing part of this company only has approximately 40% of what the old Citigroup controlled. Once the liquidation of Citigroup is complete, Bove claims investors will be left with a very attractive banking company with powerful niche positions. Bove said the stock should be owned and reiterated his Buy rating and $6.50 price target.
One question we have related to Mr. Bove's comments Citigroup today relates to his "normalized EPS" view of $1.23 per share. If Bove acknowledges that the new Citi is a fraction of the old, then his "normalized EPS" seems way off base, as we've been highlighting.
Based on the Bove's "normalized EPS" of $1.23 per share, Citigroup would have to be making about $30 billion a year in "normal" profits, based on the 23 billion shares outstanding currently. Bove thinks the stock can go to $15-$16 based on this "normalized" earnings target - gasp.
While Citigroup may be a Buy at current levels, let's get realistic here. If Citigroup is a fraction of the company it was, then the earnings power has to be a fraction of what it was.
In the go-go days of 2006 Citigroup earned $20.4 billion. So lets be really optimistic and say in 5 years Citigroup could earning half of this, or $10 billion. Then lets place a 10x multiple on that number, so $100 billion. Divide that by the number of shares outstanding at 23 billion and you get to a price of $4.34 per share. So based on this back of the envelope analysis, at its current price of $4 per share, Citi is trading on a rosy future outlook. If things go extremely well and the company can reduce the number of outstanding shares, this number can be ratcheted up. If things go bad though, it could be argued that Citi is still way overvalued.
Comments from Bove today seem to be his most rational to date on Citigroup. He now clearly understands that Citigroup is a fraction of what it was. Now if he would adjust his 'normalized EPS' view accordingly, we could be on the same page.
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Comments
c is a great long term buy
they are going to write off bad debt and be a very attractive long term investment. Its too bad everyone is trying to scare investors off. Its a great buying opportunity. Remember when Apple was $14,00 a share. need I say more.
C's long term value
Bove has been a life long apologist for c. Their strategy stinks, their management especially Pandit & Parsons stink, their new scale stinks, their asset portfolio quality stinks, and their recent consumer pricing decisions stink. WHO the hell wants to be a customer of C ? Have you ever seen a company so hell bent on suicide !!! what a pity for a once great company. Bove is clearly off his meds and needs to RETIRE !!!!!
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Customer of Citi
Jack on Nov 2, 2009 11:53 PMAli, I've been a loyal customer of Citi for over 20 years now. I'm sure I am not the only one. I expect to continue to do business with Citi for the foreseeable future.