Analyst: Our Argument For A Sell Rating On Citigroup No Longer Applies

held a bearish view on Citigroup Inc C's stock based on the bank having less leverage to "potential positives" in the U.S. such as lower tax rates, faster growth and higher interest rates — while also having greater exposure to "downside scenarios."

However, UBS's Saul Martinez upgraded Citi's stock rating from Sell to Neutral with a price target raised from $58 to $64 as the arguments for the prior bearish stance "is harder to make today" (check out Saul Martinez's track record).

Economic growth across Europe and major emerging markets has at the very least stabilized or even risen, the analyst argued. Meanwhile, "starkly" protectionist policies have not emerged which bodes well for the industry as a whole. In Citi's case, there is now greater visibility that potential cards headwinds will moderate and the North America consumer results will improve in the bottom half of 2017.

Capital Return Story

Martinez's upgrade is also based on Citi's "attractive" capital return story in which the company's dividends and buyback spend will total $15.5 billion, or 105 percent of earnings. By comparison, the analyst previously estimated Citi would spend $13.1 billion, or 88 percent of earnings.

"In other words, what was an already attractive capital return story has gotten better, in our view," Martinez wrote.

Why Not A Buy Rating?

Despite a more favorable view of Citi, a Buy rating can't be justified until the bank can generate ROTCEs that is close to its cost of equity of 10 percent, the analyst explained.

Currently, the 2019 estimated ROTCE is roughly 9 percent which in part implies investors should "hold a healthy preference" for Buy-rated JPMorgan Chase & Co. JPM.

Related Links: Benzinga's Top Upgrades, Downgrades For June 9, 2017 Citigroup Reaches Highest Level Since January 2009 _______ Image Credit: By Raysonho @ Open Grid Scheduler / Grid Engine - Own work, CC0, via Wikimedia Commons