Sterne Agee Sees Near 20% Upside In Citigroup (C)

Sterne Agee has a Buy rating and a $6 price target on shares of Citigroup C after the financial services giant reported earnings yesterday. In a note to investors, Sterne Agee writes, "Better-than-expected credit quality and further rationalization of Holdings helped beat first quarter expectations. C reported 1Q11 earnings of $0.10/share, which beat Sterne Agee estimates of $0.07 and consensus expectations of $0.09. Pre-provision profits improved linked quarter, as expected, on improved FIC trading results, and expenses were lower than expected as further rationalization of Holdings helped partially offset increased investment spend and a negative FX impact. Holdings assets fell $22B linked quarter to $337B (17% of C assets), reflecting asset sales in excess of $7B and approximately $13B of net loan run- off/pay-downs. Special items included a negative CVA mark of ($256mm) and $709mm pretax charge tied to a $12.7B asset transfer in the SAP from HTM to trading. These items negatively impacted EPS by about $0.02/share after tax. Additions to the mortgage repurchase reserve trended lower to $122mm pretax, or less than $0.01/share after tax, and reserve release increased to $3.3B, or $0.07/share, largely tied to partner cards and reserve release tied to improving counterparty risk in large corporate credit." Shares of C closed at $4.42 yesterday.