Citigroup remains bullish on attractive valuations

The stock of Citigroup Inc (NYSE: C) recorded a 12-month high of $60.91 last week. Several funds, including HGK Asset Management Inc. and Wasatch Advisors Inc, used the ‘Trump’ rally to reduce their holdings. The banking and insurance sector was responsible for nearly 73% of the S&P 500’s rise in the past one and a half month. So, the sell off looks justifiable. However, there are ample reasons to believe that Citigroup would continue to remain bullish in the short-term.

The Fed rate hike, announced in December, is expected to considerably increase the bottom line of the banks. The low interest rate environment is coming to an end.

The yield curve will rise as the Fed starts normalizing the interest rates. It can be noted that the Fed has plans to raise interest rates by as much as 0.75% next year. This would add billions to the topline of banks. It is needless to say that Citigroup is well positioned to benefit from the hike.

Citi

Citigroup now has one of the cleanest balance sheets among the banks. The entire 2008 mortgage crisis related mess has been cleaned up. At the end of Q2 2016, the Common Equity Tier 1 (CET1) ratio stood at a healthy 12.6%. It is the world’s largest credit card issuer. Furthermore, about $3 trillion worth transactions take place every day through its 700 branches worldwide. The bank’s Supplementary Leverage Ratio (SLR) of 7.5% stands apart from other banks. Likewise, the Liquidity Coverage Ratio (LCR) is an impressive 121%.

The returns to shareholders have increased from $1.3 billion in 2015 to $10.4 billion in 2016. The bank hopes to raise the amount to $15.9 billion as soon as possible. Since 2015, relative to other major banks (JP Morgan, Bank of America, and Wells Fargo) in the US, Citigroup has been offering the highest earnings yield. Another metric to note is the Citigroup’s low price to tangible book value ratio of 0.92. The debt-to-equity ratio of Citigroup has declined by 25% to1.03 in the past two years. Furthermore, the price to free cash flow of the banking and financial institution is only 4.90, compared with 19.63 of Wells Fargo bank.

Analysts at Atlantic Securities upgraded the stock to “Overweight”, from the prior “Neutral” rating. As of now, 15 analysts have given a ‘buy’ rating, while only two of them have given a ‘sell’ rating. Eight analysts have given a ‘hold’ rating to the stock. Thus, fundamentally, the stock is expected to remain bullish in the weeks to come.

The historic price chart indicates the existence of firm support for the stock at 60.40. The MACD indicator is ascending in the bullish zone. Thus, we can anticipate further increase in the share price.

So a binary trader can speculate on the rise in the share price through an investment in a high contract valid for a week. The suggested trade can be taken as long as the stock trades below $61.