Citigroup (C) management comments and its discount to book value is buoying buying action Monday morning.
Shares of the New York-based banking giant have rebounded sharply from their pre-market plunge to gain strongly in mid-morning trading.
"This is one of the cheapest stocks in the S&P," Jim Cramer commented on the floor of the New York Stock Exchange on Monday morning. "This is a company you want to buy, not sell."
The Action Alerts PLUS team, which holds the stock in Jim Cramer's charitable trust, noted that the market's reaction after the open should have been anticipated.
"We believe this was another solid quarter for the company because the trading downside should have been well reflected in the stock and there were no major problems disclosed that would otherwise justify a valuation below tangible book," the AAP team wrote. "After an initial down open, we are seeing the market better understand this as shares have since pushed higher."
The team reiterated their "One" rating, which denotes a stock the team would buy right now, adding that the stock's 3% dividend yield serves to further protect shareholders into possible market turbulence in 2019.
Even amidst its rise after the open, the stock remains at a discount to its tangible book value of $63.80 per share.
Management Buys in Big
The comments from Citigroup management on cost reductions, economic strength, and big buyback plans further bolstered the buying thesis to market participants.
Executives highlighted that $9.9 billion in fourth-quarter expenses marked a 4% decrease year over year, driven by lower compensation costs, efficiency savings and the wind-down of legacy assets.
The cost-savings have overshadowed the difficult run the company has sustained in Asian markets and the hit taken on fixed-income investments, as management directs the company's narrative in a positive direction.
The reduction in expenses also help the company focus on returning capital to shareholders, a major mandate for the year as management contends with activists investors.
"During the year, we returned $18.4 billion in capital to our shareholders, buybacks of common stock reduced the shares outstanding by over 200 million shares from a year ago or 8%, and our tangible book value per share increased by 6%," CFO John Gerspach told analysts during the earnings call. "Based on our 2018 CCAR capital plan, we expect to return an additional $9.8 billion of capital in the first half of 2019."
The buybacks, which would be additive to the company based on its discount to book value, should sustain a run for the bank stock, especially as management highlights its resilience amidst volatility.
"With December, we saw basically that extreme volatility, given the overall lack of a view of where rates would finally bottom out, impacting every one of our businesses in Fixed Income," CFO John Gerspach explained. "Now, we have seen some improvement in trading conditions with volatility moderating and both equity and yields showing signs of stabilization early in January."
He highlighted that it is too early to tell if this trend of stabilization will continue, but the dovish outlook has certainly helped market sentiment.
Still Room to Run?
Analysts picked up on the positives highlighted by management, noting that cost control and shareholder focus are the key storylines to take note of for the year.
"Citi is delivering strong growth in its core operations within the Institutional division centered on the market-leading Trade & Treasury Solutions business," Atlantic Equities analyst John Heagerty wrote on Monday morning. "Effective cost control is starting to show through while capital returns are also helping to drive the return on equity higher. With Citi trading below its [tangible book value] value, we reiterate our Overweight call."
Heagerty set a $77 price target for the stock, forecasting substantial growth for the stock ahead.
Jim Cramer has highlighted the stock as a key subject for discussion on his AAP members only call on Thursday, where each bank's earnings will be touched upon.
For information on how to tune into Jim's reaction, click here.
