BMO: Citigroup Has 40% Upside

Citigroup Inc C reported 1Q16 EPS of $1.10.

BMO Capital Markets’ James Fotheringham maintained an Outperform rating on the company, while raising the price target from $61 to $63. The new price target implies an upside of 40 percent.

Robust 1Q Core EPS

Fotheringham mentioned that Citigroup’s core EPS for the quarter was better than expected at $1.30, with the upside driven by lower-than-anticipated recurring operating expenses and lower credit costs.

The core EPS was calculated by including repositioning charges, legal and related expenses, the write-down of virtually all of the company’s net investment in Venezuela, and the loss on loan hedges, while stripping out gains on the sales of the private equity fund services business as well as two small credit card loan portfolios.

Estimates Revised

The core EPS estimates for 2016 and 2017 have been raised from $4.90 to $5.17 and from $5.88 to $5.92, respectively, as lower credit costs and operating expenses are expected to be offset by lower revenues.

“At 12.3 percent, C has the highest B3CET1 ratio (fully phased, advanced) among the money-center banks, and it is growing that ratio faster than peers (DTA consumption boosted C’s B3CET1 capital by $2 billion in 1Q16); consequently, we are optimistic about a positive CCAR result,” the BMO Capital Markets report said.