Citigroup Stock Price Down 9% in 2022– Time to Buy C Stock?

As the broader markets have corrected in 2022, banking stocks have also come under pressure after a strong 2021. Citigroup stock is now down 9% in 2022.

Citigroup stock underperformed the markets by a wide margin in 2021. The stock ended the year in the red even as banking peers outperformed the S&P 500.

Citigroup’s underperformance is not limited to 2021 alone. The stock has fallen almost 10% over the last five years and its returns trail that of the Financial Select Sector SPDR Fund by a wide margin. While the financial sector itself has underperformed the S&P 500 over the period, Citi’s underperformance stands out. What’s the forecast for C stock in 2022 and can the company reverse its underperformance?

C stock price forecast

Citigroup’s performance has lagged behind other major US banks and the management is trying to address that. In the third-quarter 2021 earnings call, CEO Jane Fraser said “We are moving forward with urgency on our top priorities in order to responsibly narrow the returns gap with our peers: the Transformation, refreshing our strategy and building a culture of excellence.”

Wall Street analysts have a consensus buy rating on C stock and of the 29 analysts covering the stock, 17 have a buy rating while 11 rate it as a hold. One analyst has rated the stock as a sell. The stock has a median target price of $72 which is a premium of 31% over current prices. The stock trades the street low target price of $55 while the street high target price of $100 is an 82.2% premium. Several analysts have lowered Citigroup’s target price this year.

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Citigroup stock long term forecast

At its investor day, Citigroup laid out a long-term roadmap for the company and said that over the next three to five years, it would target an ROTCE (return on total capital employed) of 11-12%. It added, “Our vision is to be the preeminent banking partner for institutions with cross-border needs, a global leader in wealth management and a valued personal bank in our home market.”

Citigroup also said that “We’re focused on 3 accelerated growth engines that generate higher fee growth and are capital efficient: Services, Wealth and the Commercial Bank. And in banking markets and U.S. Personal Banking, we’re focused on targeted share gains.”

Citigroup stock target price

After the investor day, Jefferies’ analyst Ken Usdin downgraded Citigroup stock from a buy to hold and lowered the target price from $79 to $60. Usdin believes that “While mgmt. articulated a clear vision at the investor day, the new [return on tangible common equity] targets are loftier (11%-12%) and farther away (’24-’26) than our expectations.”

Citigroup has been restructuring

Citi reports its earnings under two major segments, which are the Global Consumer Banking and Institutional Clients Group. Under the leadership of Fraser, who took over in 2021 only, the bank decided to exit consumer banking in 14 regions in a bid to focus on its core markets.

The move with help Citigroup raise cash and deploy it in more profitable markets. Commenting on the exit Fraser had said “While the other 13 markets have excellent businesses, we don’t have the scale we need to compete. We believe our capital, investment dollars and other resources are better deployed against higher returning opportunities in wealth management and our institutional businesses in Asia.”

Usdin believes that Citi’s plans to exit Russia might get into limbo now after Russia’s invasion of Ukraine and the resultant Western sanctions on Russia. He said, “Citi has announced exit plans for 14 non-US consumer banking markets (8 in process), but the ability to exit Russia via a sale now seems unlikely and Poland (an attractive franchise) could also be tougher given its proximity to Ukraine.”

C stock valuation

Meanwhile, looking at the valuations, Citigroup stock looks quite undervalued. At the end of 2021, it reported a book value per share of $92.21 and a tangible book value per share of $79.16. Yesterday, the stock closed at $54.87 which gives us a price-to-tangible book value multiple of just under 0.7x. Typically, multiples below 1 are seen as a sign of undervaluation and all other major US banks trade well over their tangible book value.

Citi is also spending aggressively on buybacks which would further increase its tangible book value. Looking at the earnings-based multiples, C trades at an NTM (next-12 months) PE multiple of 7.5x versus a three-year average multiple of 9.4x. The stock’s risk-reward looks quite attractive at these price levels.

Should you buy Citigroup stock

The outlook for US banks, which looked quite bullish at the beginning of the year, has turned somewhat muddied amid the current macro environment. In their note, Bank of America analysts led by Ebrahim H. Poonawala said, “We don’t see it as inconceivable that bank stocks could return to the prewar playbook which was underpinned by expectations for an improving earnings outlook on the back of rising interest rates and a pick-up in lending.”

They however added, that “this scenario will need a significant de-escalation (ceasefire) in the Russia/Ukraine conflict…the opposite of the rapidly worsening developments that have played-out over the last two weeks.”

Rate hikes

Meanwhile, the Fed is expected to raise rates multiple times this year with some brokerages forecasting as many as seven rate hikes this year. A rising rate environment is generally good for banks as it leads to an expansion in their net income margins. Unless the global economy deteriorates significantly, banks should see a gradual improvement in their loan books as well. However, rising crude oil prices could significantly dent the global economy which is negative for the banking sector.

That said, given Citigroup’s tepid valuations, it still looks a good buy at these prices and play the business transformation under Fraser.

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