Bove's bullish sentiment is based on a series of earnings estimate updates.
Raffety has raised its 2017 EPS estimate from $5.04 to $5.15; upped its 2018 EPS estimate from $5.70 to $5.92 and increased its 2019 EPS estimate from $6.16 to $6.51.
The analyst noted three reasons for the sunnier numbers. First, the net interest margin has been raised by 20 basis points to reflect interest rate changes over the past 15 months. Second, personnel expenses were revised lower to reflect Citi's divestiture of several businesses and an ongoing internal cost control program. Third, Citi's tax rate was lowered to be in-line with last year's results.
Bove stated that these factors support further upside for Citi's stock moving forward. For the stock to move higher, Citi needs to generate more common equity, more deposits and generate more loans with the capital, he said, adding that the stock's 15-year performance is directly tied to these factors.
Citi's common equity rose by 1.4 percent in each of the past three years and fell in the fourth quarter of 2016, with the possibility of further declines in the first quarter of 2017. Also, deposits are down by 1.4 percent in each of the past three years and loans fell by 2.1 percent from the fourth quarter of 2013 to the fourth quarter of 2016.
Nevertheless, Bove argued the declines in these businesses can be related to the company shedding its retail foreign operations and the sale of business that were stuck in the "bank's bad bank portfolio." As such, these actions "strengthened the company measurably."
The bottom line: Citi is in a good position to improve its core business moving forward, according to Bove. If they're successful, the value of the stock should sell at 11.9 times the return on equity, or a 15 percent discount to its projected book value.
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Latest Ratings for C
|Mar 2017||Evercore ISI Group||Downgrades||Buy||In-Line|
|Jan 2017||Standpoint Research||Downgrades||Buy||Hold|
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