Bank on Citi

06/09/2006 12:00 am EST

Focus:

Richard Moroney

Editor, Dow Theory Forecasts

Dow Theory Forecasts, having been published for over 50 years, is one of the most reputable newsletters in the industry. With a conservative approach to long-term growth investing, editor Richard Moroney often focuses on larger cap issues, such as his latest focus buyCiticorp.

"Citigroup (C NYSE) is benefiting from a diverse business mix and broad geographic exposure, with strength in international operations and corporate and investment banking offsetting weakness in the US consumer business. Citi is the largest US banking institution, has $1.5 trillion in assets, and a market capitalization of $248 billion. The company provides a wide range of financial products and services to individual and corporate customers in more than 100 countries.

"Revenue and profit declines in the US have dragged on the global consumer group. Citigroup’s US credit card operations face increased competition and have been hurt by new regulations that require higher minimum payments, which reduce balances faster. One bright note: A decline in bankruptcy filings has lowered credit costs. Strong international consumer results have helped offset declines in the US. International earnings jumped 47% in the March quarter on a 19% revenue gain. Citigroup stands to benefit from growth in such emerging markets as China, India, Russia, and Mexico. Corporate- and investment-banking revenue jumped 21% last quarter.

"In the past six months, Citigroup announced more than twice as many merger-advisory deals as it did in the previous six-month period. Citigroup ranks No. 1 in global debt underwriting and No. 2 in global equity underwriting. The company continues to add new retail-banking and consumer-finance branches, showing a focus on improving organic growth. In the March quarter, Citigroup opened 298 new branches in the US and abroad. In April, the company announced it would more than triple the size of its US automated-teller-machine network with the addition of 5,500 ATMs through a partnership with 7-Eleven convenience stores.

"Citigroup has a strong history of sharing cash with stockholders. Citigroup, yielding 4%, has raised its dividend for 21 consecutive years. Over the last 12 months, Citigroup has reduced its share count by more than 4%, buying back $2 billion in shares in the March quarter alone. Consensus estimates have been rising and now project per-share-profit growth of 9% for 2006 and 8% for 2007, targets the financial-services giant may be able to beat. Citigroup earns a Quadrix Overall score (our proprietary stock rating system) of 88 and a Value score of 96. At 11 times estimated year ahead earnings of $4.38 per share, the stock trades below its five-year average forward P/E of 13. The stock is a Long-Term Buy."

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