What Is Dick Bove Smoking On Citigroup (C)?

Today, controversial Rochdale Securities banking analyst Dick Bove came out with a Buy rating and $4 price target on the government bailed-out Citigroup (NYSE: C). In fact, Mr. Bove even crazily suggested that this company would be worth up to $12 per share on "normalized" EPS of $1.15 per share.

We have to ask what Mr. Bove is smoking.

Currently Citigroup has about 5.5 billion shares outstanding. So at $4 per share, you get a modest market cap of about $22 billion and at $12 per share you get a stretched market cap of $66 billion. But Citi has a little thing going on called an exchange offer. When this is complete, the number of shares of Citigroup outstanding will swell to 23 billion. So at $4 per share you get a $92 billion market cap and at $12 you get a $276 billion market cap.

A $276 billion market cap would make Citi the second largest company by market cap in the U.S. Only Exxon Mobil (NYSE: XOM) would have a higher market cap at $345 billion. Microsoft's (Nasdaq: MSFT) market cap is only $214 billion and Wal-Mart's (NYSE: WMT) is only $190 billion! WTF - Citi worth more than these two powerhouses!

In addition, Bove's "normalized" EPS of $1.15 on 23 billion shares is $26.5 billion in earnings. In 2006, Citi had its best yearly earnings from continuing operations of $20.4 billion. This was of course in the go-go days and before selling off a ton of their assets, including part of its wealth management unit Smith Barney and massively deleveraging. I don't see how the company can even get close to these income numbers again in the next 50 years.

I think the absolute best case scenario for Citi (before a reverse stock split), if everything goes right, is $4 per share ($92 billion market cap). Of course, as everyone knows, everything will not likely go right and there is a better argument to be made that the stock should be worth about $1 per share until the company can prove it has earnings power.

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