Jefferies, Credit Suisse Love Citigroup Stock: Here's Why

• Citigroup Inc C shares crossed the $60 mark on July 22, but have declined 10 percent in the last three months.
• Credit Suisse’s Susan Roth Katzke as well as Jefferies’ Ken Usdin upgraded their ratings on the company.
• Both the analysts believe that Citigroup’s current valuation adequately discounts various concerns.

Supported by Capital Management and Valuation

Credit Suisse’s Susan Roth Katzke upgraded the rating on the company from Neutral to Outperform, while maintaining the price target at $62. She pointed out that the company’s capital management efforts and stock valuation offer near term growth opportunity.

“With fully phased in CET 1 at 11.4% at June 30 th (10.5% required) and increasing at an above average pace through earnings, DTA usage and RWA stability, Citi has the capacity for a material step up in capital return,” Katzke added.

Citigroup’s willingness to reduce its earnings volatility, passing 2016 CCAR and the FED’s approval to allow higher payouts by the company hold the key to the company’s future.

Citigroup’s ability to drive higher returns will depend on a more constructive macro environment, sufficient investment by the company to drive modest revenue growth and efficiency gains, the Credit Suisse report stated.

Katzke said, however, that oil prices, market volatility and low interest rates are the key macro factors that may restrict the company’s performance in 3Q15.

CCAR Execution Holds the Key to Citigroup’s Future Performance

Jefferies’ Ken Usdin upgraded the rating on the company from Hold to Buy, while reducing the price target from $65 to $60. He said that while a global macro slowdown could “create top-line headwinds,” the company’s current stock valuation is discounting the bad news.

The company’s future performance is expected to be driven by its “execution on CCAR, efficiency and market share Oppty’s,” Usdin added.

Although the company is witnessing slower growth in its international consumer banking and markets businesses, it expects to meet its FY15 RPA efficiency targets. Usdin believes that Citigroup is poised to generate solid earnings and excess capital through DTA recovery.

“We estimate a CET1 ratio of 13% by 4Q16 (including our assumptions for $9.5B of buybacks and a dividend increase to $0.15 per quarter in CCAR '16). We estimate TBV can grow 14% between 2Q15 and 4Q16,” the Jefferies report stated.

Citigroup’s stock is attractive at “85% of TBV and 9x EPS; prior support levels.” Usdin added, “Patience is likely required as macro-related concerns ebb and flow, but with downside risk to the mid-$40s and upside to $60+, we see an opportunity to dip a toe in the water.”