Citigroup shares fell over 2% on Wednesday after the New York City-based investment bank at its first Investor Day forecasts that it will yield a medium-term return on tangible common equity of 11% to 12%, disappointing several analysts who had predicted slightly higher targets.
Citigroup’s expense growth has raised concerns among analysts. It is estimated that expenses will increase by 5% to 6% this year, excluding costs associated with divesting non-U.S. businesses.
“Citi’s outlook calls for med.-term (3-5 year) ROTCE of 11%-12%, which is a big ramp from adj. ~8.5% core in ’21. Goals include 4%-5% rev. CAGR, <60% effic. ratio, and an 11.5%-12% CET1 ratio. The ’22 outlook ex-divest. incl. LSD rev. growth, driven by higher rates, modest loan growth, and better fees, offset by 5%-6% cost growth, with transformation/invest. the big drivers. Losses are expected to normalize higher, with a MT targeted NCOs of ~1%,” noted Ken Usdin, equity analyst at Jefferies.
At the time of writing, Citigroup stock traded over 2% to $57.17 on Wednesday.
“Citi guiding to higher 2022 expenses of $51B (high end of their range), above our $47.5B estimate which is -$1.36 to EPS. This is 85% offset by higher revenues of $1.16, netting to 20c lower EPS for 2022. Will take time to redo our model for the new segments, but the trajectory near term is lower. 3-5 year out ROTCE guide of 11-12% is above our 10% 2025 estimate. Need much faster revenue growth to get there,” noted Betsy Graseck, equity analyst at Morgan Stanley.
“While the stock is cheap at 0.6x NTM BVPS, and new CEO is taking strong, proactive strategic action to boost returns closer to peers, we believe these actions will take time to play out. Citi is exiting 14 consumer businesses in Asia, EMEA and Mexico, and focusing on higher growth areas of US consumer, Asia WM, International wholesale and consumer payments. These actions could drive ROTCE higher than the 9% we are modelling for 2024, but we expect the stock will only start to fully reflect this once revenues begins to accelerate.”
Citigroup Stock Price Forecast
Seventeen analysts who offered stock ratings for Citigroup in the last three months forecast the average price in 12 months of $76.66 with a high forecast of $107.00 and a low forecast of $68.00.
The average price target represents a 35.27% change from the last price of $56.67. Of those 17 analysts, 10 rated “Buy”, seven rated “Hold”, while none rated “Sell”, according to Tipranks.
Morgan Stanley gave the base target price of $75 with a high of $107 under a bull scenario and $47 under the worst-case scenario. The investment bank gave an “Equal-weight” rating on the investment bank’s stock.
Several analysts have also updated their stock outlook. Wells Fargo lowered the target price to $80 from $85. Oppenheimer cut the price objective to $107 from $114. Credit Suisse slashed the target price to $72 from $76.
Technical analysis suggests it is good to sell as 100-day Moving Average and 100-200-day MACD Oscillator gives a strong selling opportunity.
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