Citigroup Flirts With $5 Again

About nine months ago, Citigroup's (NYSE: C  ) share price managed to crack through $5 per share, but it wasn't able to hold that lofty level. Recently, the stock broke the $5 mark again and then pulled back after a weak earnings report. Can Citi reclaim a five-handle and keep going?

Fools know that share price by itself doesn't mean much, but $5 per share is often a minimum share price that many institutional investors and mutual funds will consider -- as the facts bear out:

Bank

Institutional and Mutual Fund Ownership

Citigroup

39%

Bank of America (NYSE: BAC  )

64%

JPMorgan Chase (NYSE: JPM  )

75%

Wells Fargo (NYSE: WFC  )

77%

* Source: Yahoo! Finance.

Institutions and mutual funds would have to go on quite a shopping spree for their Citi ownership levels to catch up with those of the other big banks.

But now we've seen two significant changes since Citi's last foray with 5 bucks. First, the U.S. Treasury completed selling its stake in the bank, and those sales had kept the brakes on any price increases. Second, the former king of big, bailed-out banks has now put together a string of four consecutive profitable quarters.

To get a handle on how Citi compares with its peers, let’s look at some numbers.

Bank

PE
(2011 Estimate)

Price-to-Tangible Book Ratio

Tier 1 Capital Ratio

Citigroup

10.43

1.07

12.5%

Bank of America

9.82

1.15

11.2%

JP Morgan Chase

9.69

1.52

11.9%

Wells Fargo

11.47

1.81

11.3%

*Sources: Yahoo! Finance, The Motley Fool, Capital IQ (a division of Standard & Poor's), and recent quarterly earnings reports.

Citi's valuation stacks up well against the other big U.S. banks. With the Treasury share overhang of out of the way and a string of quarterly reports showing earnings on the books, the company deserves to trade at similar multiples to peers. Having the strongest capital ratio in the group even makes a dividend a possibility.

Cracking the $5 barrier and falling back may look like a repeat from last year, but this time Citi has demonstrated that it's turned things around. The numbers in the most recent earnings report missed the mark, but my Foolish colleague Morgan Housel points out that there was some good news in the report. With its performance on the right track and institutions still underweight on the stock, I don't expect Citigroup to stay below $5 for much longer.

What's your opinion? Is Citi at $5 cheap or expensive?

More big-bank Foolishness:

Fool contributor Russ Krull owns shares of Wells Fargo but has no financial position in any of the other companies mentioned in this article. The Fool owns shares of JPMorgan Chase and Wells Fargo. Through different portfolios in its "Rising Stars" series, the Fool is both long and short Bank of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (24)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 22, 2011, at 12:28 PM, stockmajor wrote:

    I bought heavy into C in August of 2009 at close to $4.00/share.

    Well, I was more than a year early and had to suffer the stock going all the way down to $3.15/share, but I didn't sell because I did and still do believe that this trade will pay off big for those who can be patient.

    C will be in the $10 to $12 a share price by the end of 2012. There will be share buybacks and the dividend will be reinstated and raised over time. I probably won't sell this stock even then because I think that C, just like BAC, will eventually rise above $30/share and on to $50/share eventually. I don't know how many years it will take for them to reach these lofty highs, but I'm certain they will as they reduce the number of outstanding shares.

    In a few years time the banks will have all of this mortgage/forclosure/put backs mess behind them and they will return to being the big money making machines that they were. These two very large banks are going to be around for a long time to come. And for the multiples of return they will pay, I don't mind waiting.

  • Report this Comment On January 22, 2011, at 8:31 PM, anonymous5city wrote:

    City will move beyond $5.00 very soon and past $5.50 as most anaylst expect.... the possibility of an early unexpecteced common stock dividend will continue to propell the share price upward! Once the common stock dividend is declared-zoom-zoom past $6.00 per share no problem. I see this happening on or around Feb. 11, 2011.

  • Report this Comment On January 22, 2011, at 9:49 PM, finanspeak wrote:

    Let's not forget Citi's has a reverse split card up its sleeve. Before it declares a dividend, I think we will see a 4 or 5 for 1 reverse split. Otherwise a dividend will be insignificant and/or too costly for Citi. As for the stock hitting $5 and staying above it, I'd like to see it now and not as a result of the reverse split.

  • Report this Comment On January 23, 2011, at 11:37 AM, 69jerry wrote:

    Will the big "C" rally above $5.00? Certainly! But isn't the true question if or how long it will stay there? Recent history says it won't stay there that long. But the last four quarters indicate it will. The fact that it can pay a dividend should be overruled by the fact that it should not pay a dividend. Keep the money, improve your balance sheet. Drastically improve your cross-sell ratios to those of WFC, and you'll have steady strong stock price appreciation.

    timemachine

  • Report this Comment On January 23, 2011, at 7:11 PM, HikuU wrote:

    I guess I don't understand how a 2% dividend is more expensive for 5 billion shares than for 1 billion shares 'cause either way the company is still valued at the same amount. CEO has repeatedly said no dividend until 2012, on this they have never said anything otherwise. I believe that management and board would rather see stock above $5 on its' own merit rather than a reverse split, not saying that a reverse split won't happen just maybe not yet. As for the future C is into Asia and continuing to grow there and here. Also for the future, they are getting into energy trading, that could be huge! That was and is a very good move, congratulations. Now execute!

  • Report this Comment On January 23, 2011, at 7:49 PM, anonymous5city wrote:

    The missing linkage here is Citi's newly appointed, Head of investors' relations, Tim Geithner, to begin work Feb. 1, 2011. I predict a suprise announcement by Feb. 11, 2011, from Mr. Geithner of Citi's new revised plan of issuing a dividend to common stockholders ASAP-well before 2012. Fast money to be made with february call options in, out, or near the money! Smart money to be made now, buying long on this recent pull-back. ... No! I'm not having some kind of psychotic delusional break. I'll stake my professional reputation on this insight with a minumun 10-20% price appreciation in Citi common stock by February 14th 2011. As far as reverse stock splits, we will all be astonished as how quantitative easy will allow Citi to be paying 3-4% dividends within 2 years, without the reverse stock split. So, if your reading this, my advice is to go immediately to your on-line brokerage account & put your bur orders IN!

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