Citigroup Stock Price Forecast January 2022 – Time to Buy C Stock?

2021 was a good year for banking and financial stocks. There was a broad-based rally amid the rise in interest rates and the continued economic recovery. Bank stocks outperformed the S&P 500 last year. However, Citigroup (NYSE: C) stock was a notable exception and the stock closed down in 2021.

Citigroup’s underperformance is not limited to 2021 alone. The stock has grown at a CAGR of less than 1% 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?

Citigroup stock recent developments

There hasn’t been any recent update from Citigroup and we’ll next hear from the company next week when it releases its fourth-quarter 2021 earnings. Analysts expect the company’s revenues to rise 3.5% in the quarter and reach $17.07 billion. The company’s revenues have been falling on a YoY basis in the last many quarters. Meanwhile, analysts expect Citigroup’s net income to fall almost 20% to $3.5 billion in the quarter.

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C is restructuring under Fraser

Citi reports its earnings under two major segments, which are the Global Consumer Banking and Institutional Clients Group. Under the leadership of its CEO Jane Fraser, who took over in 2021 only, the bank decided to exit consumer banking in 13 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.”

It was a hard decision for Citi as the markets it is exiting include India and China, two of the biggest economies globally. However, the banking sector in both these countries is dominated by state-owned and local banks and foreign banks have met with little success there. Collectively, the markets that Citigroup is exiting accounted for less than 5% of its total revenues.

Citigroup 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 earnings call, 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 25 analysts covering the stock, 16 have a buy rating while the remaining nine rate it as a hold. The stock has a median target price of $82 which is a premium of 29% over current prices. The stock even trades 3% below the street low target price of $66 while the street high target price of $120 is an 88.7% premium.

Analysts have been turning bullish on C stock

Meanwhile, after the perennial underperformance, analysts have been taking a bullish view of Citigroup stock. Bank of America has named the stock as a top idea for 2022 and is bullish on the company amid its transformation. It said “Positively for shareholders, new CEO Jane Fraser (appointed March 2021) appears to be operating with a sense of urgency to right-size the franchise (announced exit from consumer banking in 13 countries) and to address regulatory concerns (tied to risk controls) while preparing to lay out a vision for the Citi franchise. Execution risk cannot be underestimated.”

C stock long term forecast

The long-term forecast for C stock is contingent upon its transformation strategy. The bank hasn’t been in the best books of regulators and paid a fine of $400 million in 2020. That year, it had accidentally sent $900 million to incorrect entities which did not reflect well on the bank. However, the company has a strong franchise and is a well-known global brand in wealth management and investment banking. Both these industries are growing fast which bodes well for C stock as well.

C stock trades below the 50-day, 100-day, and 200-day SMA (simple moving average). The stock would need to cross above the 50-day SMA, which is currently at $64.75 to signal some bullishness.

Citigroup stock looks undervalued

Meanwhile, looking at the valuations, Citigroup stock looks quite undervalued. In its third-quarter earnings call, it reported a book value per share of $92.16 and a tangible book value per share of $79.07. The stock trades at $63.59 which gives us a price-to-tangible book value multiple of around 0.8x. 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 8.1x versus a three-year average multiple of 9.4x. Bank of America finds the stock’s risk-reward attractive at these valuations.

Should you buy C stock?

The setup for Citigroup looks attractive in 2022. Central banks globally are expected to raise rates with the dot plot predicting three rate hikes in the US. 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.

Given the positive outlook for the banking sector and the attractive valuations of Citigroup, the stock looks a good buy for 2022, especially as it continues to transform under the new CEO.

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