Citigroup Inc. (C) is trading lower by less than 1% in Monday’s pre-market after Morgan Stanley downgraded the financial giant from ‘Equal Weight’ to ‘Underweight’, lowering the price target to $60. The bearish call follows other March downgrades from Jefferies, Atlantic Equities, and Keefe Bruyette, highlighting increased Wall Street skepticism about first quarter performance, ahead of the April 14 Q1 2022 earnings report.
Rising Inflation and Ukraine Headwinds
The commercial banking sector has struggled since the start of 2022, dropping major sector funds about 10%. Rising interest rates should underpin industry profits, increasing the spread between overnight rates paid by the bank and the cost to customers, but recession fears have taken hold of the group. The Ukraine invasion has made a bad situation worse, closing the door to investment opportunities in Eastern Europe while dampening worldwide sentiment for business expansion.
Jefferies analyst Ken Usdin downgraded Citigroup to ‘Hold’ earlier this month, lowering the price target to $60 while warning “management articulated a clear vision at the investor day but the new ROTCE targets are loftier (11% – 12%) and farther away (2024 – 2026) than our expectations. A model refresh puts our 2022/2023 EPS estimates well-below consensus at $6.80/ $7.00, respectively. While valuation has slipped to about 70% of TBV and 8x our revised EPS, negative revisions and global uncertainty could limit upside.”
Wall Street and Technical Outlook
Wall Street consensus stands at an ‘Overweight’ rating based upon 13 ‘Buy’, 2 ‘Overweight’, and 11 ‘Hold’ recommendations. In addition, two analysts are recommending that shareholders close positions. Price targets currently range from a low of $55 to a Street-high $100 while the stock is set to open Monday’s session less than a buck below the low target. This dismal placement highlights a major disconnect between analyst optimism and investor risk appetite.
Citigroup bounced into the 50s in 2009 after nearing bankruptcy during the 2008 market crash. It finally cleared resistance in 2016, lifting to 80.70 in January 2018. January 2020 and June 2021 breakout attempts failed, giving way to a steady downtick that reached a 15-month low in February 2022. Accumulation readings have now fallen to the lowest low since 2012, when the stock was trading in the upper 20s. This exodus raises odds for much lower prices in coming months.
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Disclosure: the author held no positions in aforementioned securities at the time of publication.
This article was originally posted on FX Empire