Camarda Wealth – Stock Buy Recommendation

Research by Dr. Thanh Bui, Chief Fundamental Analyst

Edited by Jeff Camarda, Chief Investment Officer

Citigroup Inc. (C) is a financial services holding company providing financial products and services, including consumer banking, credit cards, corporate and investment banking, securities brokerage, and wealth management. Key positive points are:

  • The company’s global presence differentiates it from other big U.S. banks. Currently, the company has 3,280 branches in 35 countries. A large percentage of its total revenue comes from Asia and Latin America, and the bank seems poised to participate in the anticipated growth of these economies over the coming decade. These markets offer an attractive combination of high margins and rapid credit growth in the context of forecasted continuing low rates and declining leverage in the U.S. and other Western economies for the next few years.
  • Over the past five years, Citigroup has improved by raising new capital, reorganizing its assets, and strengthening its board of directors and management team. In addition, the company’s management is attempting to optimize operations and cut expenses, such as by consolidating back-office functions and concentrating its branch network in key international markets, including Brazil and Hong Kong. Recently, it sold its Japanese consumer operations—a segment with slow growth prospects—in a move reflecting management’s strategy to concentrate on profitable and promising business lines.
  • Citigroup’s balance sheet seems solid. In the first quarter of 2016 year, the company met the common equity Tier 1 ratio requirement (i.e. Tier 1 capital/risk-weighted assets) as required regulation Basel III (minimum is 6%, the bank data is 11%). Recently, the company has resolved many of its exposures to litigation, which has been a significant stumbling block for investors. Per the company’s recent reports, there is no category of loan or securities accounting for more than 200% of its tangible common equity, which is a good thing.
  • The interest income (core business) and operating income of the company are up-trending over the last four years with high growth in 2015. Loans made up 34% of its total assets as of September 30th, 2015.
  • Cash flow is strong. Its free cash flow has been growing fast and now accounts for 29.5% of the company’s market value. It has been increasing the dividend payment over the past five years.
  • The company enjoyed high profitability versus its industry and companies in general with a very respectable net profit margin of 17.8% versus the market level of 13.3%.
  • It has been recently trading at attractive “bargain” levels with a P/E of 9.3, P/B of 0.8, and PEG of 0.4. Its EV/EBITDA is 9.03.
  • Overall Opinion: attractive valuation, strong financial position, a strong and-improving effort from management, and good growth potential. We rate it a strong BUY.

Important Investment Research Report Disclaimer: This research is for our clients only. This research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various reasons may prevent us from doing so. Other than reports published on a periodic basis, the large majority of our reports are published at irregular intervals as appropriate in the analyst’s judgment. Our professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed in this research. Our asset management and portfolio investment businesses may make investment decisions that are inconsistent with the recommendations or views expressed in this research. The analyst(s) named in this report may have from time to time discussed with our clients or other professionals or may discuss in this report, trading strategies that reference catalysts or events that may have a near-term impact on the market price of the equity securities discussed in this report, which impact may be directionally counter to the analysts’ or professionals previous opinions for such stocks. Any such trading strategies are distinct from and do not affect the analysts’ fundamental opinion of such stocks, which opinion reflects a stock’s return potential relative to its coverage group as described herein. We and our affiliates, officers, directors, employees and clients may from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research. Any third party referenced herein, may have positions in the products mentioned that are inconsistent with the views expressed by analyst(s) named in this report. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of investments referred to in this research and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of The Camarda Wealth Advisory Group.

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