If you're on the hunt for bargains after the recent stock market dip, look no further than Citigroup (C +0.11%). The bank is trading at a 27% discount to its tangible book value, making it a golden opportunity for value-focused investors.
CEO Jane Fraser is looking to make her mark and bring the bank's efficiency to the next level. Citigroup recently reported solid first-quarter earnings and has made strides toward its long-term goals. With the stock priced below $70 per share, it looks like a solid buy for value investors today. Here's why.
NYSE: C
Key Data Points
Citigroup is undergoing a transformation
Citigroup is one of the largest banks in the United States, but it has lagged behind its large peers for quite some time. The bank has faced challenges due to its expansive, sprawling business and regulatory actions, including fines for persistent deficiencies identified several years back. As a result, the bank has consistently underperformed on key return on equity metrics.
CEO Jane Fraser took the helm of a struggling bank in 2021, determined to revitalize the business. Faced with poor performance and compliance issues, she made the tough call to cut bonuses for top employees, reduce management layers, and focus on core businesses. Recently, the bank hired thousands of dedicated staff and reduced reliance on IT contractors as it addressed regulatory scrutiny over its data governance and controls.
Citigroup reported solid earnings results in the first quarter, beating analysts' revenue and earnings estimates. According to Fraser, "services recorded its best first-quarter revenue in a decade," and the bank posted a net income of $4 billion, representing solid 21% growth year over year.
The return on tangible common equity (ROTCE) is one key measure of the bank's profitability that Fraser wants to improve. This metric shows how efficiently the bank uses capital to generate profits, specifically focusing on tangible common equity, excluding things like goodwill and intangible assets. Fraser aims to get this to 10% to 11% by next year. The bank has made good progress here, with its ROTCE in the first quarter improving to 9.1% from 7.6% one year ago.
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This revenue stream could be affected by recent market volatility
One thing that could hurt Citigroup is a slower capital markets rebound in 2025. Investment banks hoped the Trump administration would loosen strict regulations on major deals, which would boost advisory revenues and help spur a boom in deals. Instead, the administration will uphold strict guidelines for deals put in place under former chair of the Federal Trade Commission (FTC) Lina Khan.
Market conditions could hurt initial public offerings (IPOs), too. Companies want to go public when markets are more stable, and prices are less vulnerable to significant swings. This market has anything but that. There is a lot of policy uncertainty, focusing on tariffs and impacts on global supply chains.
Despite some concerns about the backdrop for investment banking, Citigroup had a solid quarter here as well, with revenue growing 12% year over year. The bank benefited from growth in advisory fees on mergers and acquisition deals, but saw equity and debt underwriting activity decline as market participants navigated significant economic and market uncertainty.
A solid stock at a deep discount
Citigroup will continue to streamline operations and focus on its more profitable core businesses. The bank plans to spin off its Banamex retail banking unit by the end of the year, although CFO Mark Mason says that securing regulatory approvals could push this timeline into 2026.
C Price to Tangible Book Value data by YCharts
Despite this progress, Citigroup continues to trade at a deep discount. Recent stock market volatility has the bank stock priced at 0.73 times its tangible book value (P/TBV), or a 27% discount. To compare, peers Wells Fargo and Bank of America are priced at 1.61 and 1.41 times tangible book value, respectively.
Citigroup offers an attractive valuation with room for growth, should it succeed in its turnaround efforts. In February, the bank traded at 0.95 times its tangible book value, so the recent sell-off has given investors another opportunity to scoop up the bank stock at a dirt cheap valuation.
