Citi Remains Consensus Buy On Wall Street, But SocGen Begs To Differ

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  • Citigroup Inc C shares have been volatile so far in 2015, and are down less than 1 percent year-to-date.
  • Societe Generale’s Murali Gopal maintained a Hold rating on the company, with a price target of $56.
  • Citi faces a challenging operating environment and its earnings growth and profitability are likely to be limited, Gopal said.

Citi continues to have 29 Buy ratings and is a consensus favorite. The Buy ratings largely reflect the company’s strong capital position and EM exposure. “We beg to differ,” Murali Gopal commented.

Although Citi’s capital position is strong and the outlook is healthy, the operating environment is far more challenging for Citi than it is for peers, Gopal explained. He added that the consensus seems to be underestimating “the potential downside risks from the ongoing uncertainties in key EMs.”

Gopal expects upside to Citi’s earnings growth and profitability to be limited, given that the company faces several headwinds “that seem to be gathering together.” These headwinds include:

  1. Large non-US and EM exposure, with uncertainties surrounding growth
  2. Potential contagion risks from a prolonged slowdown in China
  3. Weakening EM currencies and the impact of this on credit losses
  4. Soft performance in cards, which constitutes 27 percent of the company’s revenues
  5. Relatively large FICC exposure
  6. Relatively limited upside to rising interest rates

Citi has already made significant progress on the expense front, and incremental upside is likely to be very limited, the analyst commented. Consequently, RoTE improvement is likely to be gradual.

“In the current environment, our preference is for banks with large US revenue exposure, meaningful upside to rising interest rates and ongoing expense savings initiatives,” Gopal added.

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Posted In: Analyst ColorReiterationAnalyst RatingsMurali GopalSociete Generale
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