MARCH 16 KICKS OFF expiration of lock-up of gov't shares....pandit gunna drop "happy bombs" and gov't shares bought by c.....u heard it first right here and mr. curry will announce repurchase frenzy c been on......be on guard for "leaks" which could spring leading up to march 16 as well........we sooooo coiled to explode north........150k shares long and 100k shares on margin at 3.16.....license to print money......
March 1, 2010 11:08 AM EST
When a CNBC viewer asked Warren Buffett if and when he is going to buy Citigroup (NYSE: C) shares, because of its "cheap" book value, Buffett basically laughed at the notion.
Buffett explained that for a bank he is not looking for book value, but earnings power. Buffett said Citigroup's earnings power is hard to figure out and said Citigroup pays more for funds than others. He said he would rather own Wells Fargo (NYSE: WFC), which is a large position in his portfolio.
Here is a quick breakdown of what the viewer and Buffett are saying on Citigroup's "value."
Citigroup currently trades at a 0.82x its Q4 tangible book value per share of $4.15. This is well below peers that trade at 1.75x tangible book. Many analysts think the shares should trade at 1-1.2x tangible book value. So there is a credible argument that Citigroup should trade between $4.15 and $5 per share. And if you go to the peer multiple of 1.75x you an come up with a price of $7.26. Currently shares of Citigroup trade at $3.39.
So the viewer is basically looking at this valuation discount based on tangible book and pointing out to Warren Buffett that the stock is "cheap."
Buffett points out that he values banks on earnings power. This is were Citigroup has problems. This year (2010), Citigroup is expected to earn/lose between ($0.40) and $0.23 and on average analysts see the company earning $0.04 per share. Next year (2011), Citigroup is expected to earn/lose between ($0.05) and $0.55 and on average analysts see the company earning $0.34 per share.
As a tradition, banks trade at 10x EPS. So if you go out to the 2011 numbers and take the analyst average of $0.34 you get to a price of $3.40 per share. This is right in-line with the current price of $3.39.
So looking at the earnings power of Citigroup, Buffett sees little upside and possible downside risk. This is not a stock for him. Hedge fund managers including John Paulson that have recently plowed into the shares, are likely looking at the discount to book value. Who will be right?
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"pandit gunna drop "happy bombs" and gov't shares bought by c"
Im thinking C and the govt will dilute the heck out of the stock just like always. I dont see any evidence or history that suggests otherwise. Buy after the mess