Buckingham: 12% Upside Possible For Citigroup Following Q3 Print

Buckingham analyst James Mitchell reiterated a Buy rating and $81 price target for Citigroup Inc C after the bank posted third quarter results.

The stock opened approximately 2 percent lower Friday and is trading 0.37 percent lower; investors reacted negatively on guidance for higher U.S. card net charge-off ratio for next year, Mitchell said. (See Mitchell's track record here.) 

The change in the U.S. card net charge-off ratio is only $200 million higher than the estimate and reflects higher revenue, according to Buckingham. 

Higher losses come with higher growth, Mitchell said. 

Consumer revenue rose in Q3 by 5 percent quarter-over-quarter and expenses were $150 million lower than forecasted, according to Buckingham. 

Citigroup's Q3 efficiency ratio is 57.8 percent, which falls below guidance, Mitchell said. Preprovision profit in global consumer banking rose around $500 million or 14 percent quarter-over-quarter, which was well above consensus and also above Mitchell's forecast of 9 percent.

Citigroup's reported positives and negatives offset themselves, leading Buckingham to maintain its rating and price target, Mitchell said.

In Mitchell's analysis, the upside for Citigroup is 30 percent and a potential downside for the stock is 20 percent. The bank's growth drivers include an improving macroeconomic environment, activity in the capital markets, declining credit costs, consumer and corporate loan demand and international expansion, he said. Potential risks that were identified by Buckingham include a slowdown in the global economy, a weakening credit and capital markets environment and operational risks.

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