Deutsche Bank Starts Coverage on Citigroup (C) With a Buy

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Deutsche Bank initiates coverage on Citigroup (NYSE: C) with a Buy rating and $5.50 price target. The firm said there are several remaining risks, but also several positives.

The firm cited the positive for their new Buy rating:

1) Citi seems well-positioned vs. most other banks for both a faster than expected economic recovery or another dip down;
2) the 34% government ownership stake is currently a big overhang, but we expect it to be reduced soon; and
3) focus will eventually shift to what Citi can earn in a more normal environment and what will be done with excess capital (which could be meaningful over time).
Lastly, we find Citi shares attractively valued--trading at 1.1x trough tangible book vs. 1.5x for the overall group.

The firm also said Citigroup has more upside to a recovery and less risk to another downturn.

They also estimate normalized EPS of $0.65 before deployment of excess capital. This would imply a return on assets of 1.2% and a return on tangible common equity of 12%. Including deployment of excess capital (which may total $45b in a few years), they estimate EPS of $0.95—which they believe implies Citi shares could reach $10 over time.

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