Goldman turns bullish on Citigroup citing stable growth; stock gains

Citigroup (NYSE: C) got a major boost Thursday after Goldman Sachs came out with a bullish statement on the bank’s growth prospects this year and beyond. The stock opened the day’s session higher and maintained the uptrend in the early hours.

According to the analyst, Citi will remain unaffected by changes in the global economy and the Fed’s monetary policy, which will help the banking giant achieve above-consensus growth through 2020. The return on tangible common equity is estimated to move up to 13% next year – pretty close to the management’s target – primarily reflecting the cost-saving efforts.

Also see: Citigroup Q1 2019 Earnings Conference

Upgrading the stock to buy from neutral and raising the target price by 8% to $77, the analyst said the market has been “overly pessimistic” about the bank’s ability to achieve its RoE target. The revised target price, which represents a 20% upside from the current levels, can lift the price-to-book ratio to above 1, matching the average for the sector.

The analyst said the market has been “overly pessimistic” about the bank’s ability to achieve its RoE target

Moreover, the bank’s strong overseas presence, especially in Asia, allows it to take advantage of changes in trade flows in the event of a further escalation of the ongoing trade dispute, which might prompt enterprises to diversify their supply chains. 

WEAK TRADING REVENUE

Goldman’s statement comes a day after Citi CEO Michael Corbat’s bearish views on the bank’s trading revenue raised concerns among investors. Corbat said trading revenues declined in the second quarter so far, hurt by uncertainties from the Brexit stalemate and the country’s deteriorating trade ties with China.

Though JPMorgan had cautioned in a research note earlier this month that Citi’s trading revenue dropped in the first two months of the current quarter, the analyst expressed hope that the trend would reverse in the final weeks of the quarter.

Citi has outperformed the market at the bourses so far this year, gaining about 19% and staying ahead of the S&P’s banking index. Over the past twelve months, the stock dropped about 4%.

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