Should You Be a Buyer of Citi Shares?

According to Bloomberg, the government could announce as early as next month a program to sell down its 27% stake in Citigroup (NYSE: C  ) . The timing looks relatively favorable: Citi has been the fourth-best performing stock in the S&P 500 this month, up 27% through March 26. Should investors get on board by purchasing the shares now?

Let's take a look at how Citi stacks up with respect to six of its global peers in terms of valuation:

 

P/E (2011 EPS)

P/E (2012 EPS)

Citigroup

11.3

6.7

Wells Fargo (NYSE: WFC  )

10.9

8.2

JPMorgan Chase (NYSE: JPM  )

9.6

7.8

Bank of America (NYSE: BAC  )

9.0

6.2

UBS (NYSE: UBS  )

8.9

7.5

Barclays (NYSE: BCS  )

8.5

7.0

Deutsche Bank (NYSE: DB  )

7.7

7.1

Source: Capital IQ, a division of Standard & Poor's.

Most expensive or next-to-cheapest?
The table shows that Citi shares are the most expensive on the basis of next year's estimated earnings per share (EPS), but next to the cheapest on the basis of estimated 2012 EPS. In that respect, they may offer an opportunity.

A long-dated bet
Indeed, the average holding period for a New York Stock Exchange stock is less than one year; most current Citi shareholders won't be around to care whether 2012 earnings estimates pan out. However, if Citi can achieve or beat its EPS estimate, the shares may end up looking relatively attractive. Still, it's hardly a slam-dunk: The range of the group's P/Es based on 2012 EPS estimates is pretty narrow. It seems to me that in order to make this bet, you should really be expecting the bank to top the consensus EPS estimate.

Furthermore, a lot can happen between now and 2012 -- you can drive a government bailout program through the range of possible outcomes around that estimate.

Two safer bets
Is there an opportunity here? Possibly -- for professional investors with a variant perception and a longer-than-average time horizon. For individual investors, Wells Fargo and JPMorgan Chase, which sport similar valuations to Citi, look like safer bets.

Between high valuations and slow growth, investors should expect disappointing returns from U.S. stocks over the next several years. Tim Hanson explains how to make more in 2010.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (15) | Recommend This Article (19)

Comments from our Foolish Readers

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  • Report this Comment On March 29, 2010, at 3:13 PM, bzhayes wrote:

    Maybe I am being foolish.... but from a supply and demand point of view, up to 27% of the company could be on sale in the coming months! To me, that sounds like an awful lot of supply to drive the price down.

  • Report this Comment On March 29, 2010, at 3:28 PM, vbbv wrote:

    When it's all said and done, Citigroup is going to represent one of the better known buying opportunities of this decade. Of all the US banks, C has the best foreign network (esp in Asia) where will drive future growth. I have some 4000 shares and I'll be adding as the govt sells its stakes...

  • Report this Comment On March 29, 2010, at 3:29 PM, vbbv wrote:

    Bzhayes, yes you're theoretically right; but, the market has already priced in this sale. Also, there's talk of many institutional investors finally buying shares of C now that the Govt has indicated that it will be exiting...

  • Report this Comment On March 29, 2010, at 3:37 PM, vbbv wrote:

    Bzhayes, yes you're theoretically right; but, the market has already priced in this sale. Also, there's talk of many institutional investors finally buying shares of C now that the Govt has indicated that it will be exiting. Ultimately, I think the stock price may trend somewhat down, but there isn't going to be anything resembling an enormous drop...

  • Report this Comment On March 29, 2010, at 6:26 PM, plange01 wrote:

    citi will be selling for over $20 in a year and a half..

  • Report this Comment On March 29, 2010, at 6:44 PM, tkell31 wrote:

    Really? A 600 billion market cap while they are selling assests? 8 maybe, over 20? Ridiculous.

  • Report this Comment On March 30, 2010, at 4:14 AM, Counterparty wrote:

    Long term absolutely outperform. 7-8 USD should be a realistic target within the next 12-18 months based on EPS of 0,70.

  • Report this Comment On March 30, 2010, at 5:39 AM, Br0oklyn wrote:

    Citi Is a trade, if you' re long citi you would have to hold it for years, they may do a reverse split to make the stock more attractive, but remember u have a gazillon shares in the float..

  • Report this Comment On March 30, 2010, at 5:40 AM, Br0oklyn wrote:

    Citi Is a trade, if you' re long citi you would have to hold it for years, they may do a reverse split to make the stock more attractive, but remember u have a gazillon shares in the float.

  • Report this Comment On March 30, 2010, at 11:48 AM, valari25 wrote:

    I am thinking of selling C LEAP 2012 puts at $4. I don't think they stay this low, that long and the net cost would be $3.20ish.share which for my time horizon (20+years to retirement) is fine if it does get put to me.

  • Report this Comment On March 30, 2010, at 11:49 AM, valari25 wrote:

    I see TMF commenting is still broken, causing double posts. At least they fixed the header problem yesterday.

  • Report this Comment On March 30, 2010, at 4:49 PM, whereugoing wrote:

    Citi is a trade? I am sure everthing is a trade to you, How about holding on for a couple of years instead of a couple of hours? You panic too much and you miss out, Be patient. As far as the float. It is way too much but with a strong cash position on the balance sheet what if there were buy back some shares? If the economy improves C will have less need for capital and could use their strong position to buy back shares. Make the bet on the economy. Take a Macro look instead of the price minute to minute. Think big brother! At $4 a share they can eaisly buy back 10 billion shares if there loan losses stablize.

  • Report this Comment On March 30, 2010, at 5:03 PM, ragedmaximus wrote:

    I wanted to invest all i had when it was trading for a dollar and was told it was a bad idea and well it went to 5 bucks and now its at 4 and i feel it will probably linger between 3.50 and 4.50 for the next few months and when econ news gets better funds will go back in it and drive the price up so i probably will get some more soon and have made some money but not as much as i could have.theres only so many beaten sectors left with great upside and this is one of them

  • Report this Comment On April 01, 2010, at 5:08 PM, multi007 wrote:

    Im already an owner of 10K shares when it hit $3. I dont need to be sold on buying more. It's a long term option with no expiration.

  • Report this Comment On May 18, 2010, at 10:39 PM, jtsnewbie wrote:

    Help me out here gang ... I'm new to buying stocks and Citi just seems like a agreat place to start, if I'm starting now. What pitfalls and peaks do I look for or expect with Citi? How many shares is smart with Citi right now? Your thoughts? Thanks-

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