C - Citigroup: Bull Run Towards Triple-Digit Share Valuation May Have Started

2024-03-29 07:10:04 ET

Summary

• I reiterate a very strong buy thesis for Citigroup shares, as I believe that most recent price appreciation has only been the starting shot of a broader, long-dated bull.
• The macroeconomic backdrop is favorable, with expectations of rate cuts and strong GDP growth, which could sharply drive up banking activity over the next quarters.
• The bank has made progress in restructuring, leading to an expanding cost-to-income ratio and profitability.
• On top of fundamental strength, I highlight the renaissance of the Fed put, which could potentially significantly change the risk perception of investors towards financial institutions.
• Given these factors and improved commercial dynamics, I am also updating my valuation model anchored on earnings through 2026, setting a new fair share price at $97.

Approaching 2024, I have assigned Citigroup (C) a "Strong Buy" rating, arguing that the bank's stock is on the brink of appreciable valuation growth due to several key factors:

The bank has lately been making good progress in restructuring its operations, setting up for an expanding cost-to-income ratio going into 2024 and beyond. Moreover, conviction on rate cuts is building confidence on an improving credit environment, with both supportive loan growth and manageable write-downs on the bank's existent book. In my opinion, this backdrop could drive multiples higher quickly.

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