Citigroup’s (C) share price has dipped slightly from its recent closing high of $4.27 following the Treasury Department’s announcement that it will sell its $7.7 billion shares “over the course of 2010 subject to market conditions.” Longer term, however, analysts generally welcome the move as it will remove the uncertainty associated with the Treasury’s stake.
Morgan Stanley will serve as the government’s advisor on the sale. The government will sell between 8% and 10% of average daily volume each day following Citigroup’s earnings report on April 19.
Sandler O’Neill analyst Jeff Harte said the sale of the US Treasury’s shares could drive up Citigroup stock prices over time (WSJ Blogs). Harte contends that concrete signals of a U.S. departure from Citigroup could coax institutions back into the stock.
“It’s an attractive name in some ways, but it’s also a lot riskier” than its more richly valued peers, said Jaime Peters, an analyst at Morningstar Inc. And Citi’s $4.18 per-share price tag (down 13 cents Monday) is not much of a discount to long-term fair value as modeled by Morningstar. (American Banker). But Deon Strickland, a Wake Forest University finance professor who has studied different aspects of stock ownership composition, said any impact from an increase in Citi’s institutional investor base would probably be short-term.
Standard & Poor’s analyst Matthew Albrecht also saw the development as an encouraging sign for Citi. He raised the financial services company’s rating from “Hold” to “Buy,” predicting that “the government could divest its stake without undue pressure on the share price.” He said, “We are raising our target price by $1.50 to $6.00, on a higher premium to projected tangible book value to reflect our view of Citigroup’s improved outlook” (Barron’s). Albrecht told MarketWatch that the US Treasury shares “are included in my earnings estimates and have been for a while.” He said, “The impact is large but the company can make money for shareholders in future.”
Rochdale Securities LLC analyst Dick Bove again told CNBC that Citigroup could earn 70 cents a share over the next few years and upgraded his stock price target for Citi, from $7 on March 10 to $8.50. Based on Bove’s target the government’s current $8 billion profit could translate into a $15 or $20 billion profit in 6 months to 1 year, a $106 billion profit on the Treasury Department’s initial $25 billion investment (American Banking News).
But “Even though Citi is performing better, the bank remains unwieldy and still looks a long way from earning enough to offset its cost of capital,” breakingviews says. “There’s plenty more work needed to make absolutely certain that Uncle Sam does not have to move back in.”
Avram J. Davis
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