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Is Citi Worth Bottom Fishing?
Earlier in the week, it was reported that New York-based Citigroup (NYSE:C) would sell a pretty hefty $17 billion worth of stock to help repay the billions of dollars it owes the government from the bailouts it received. But is that something to cheer about?
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The D Word
In a sense, it is a good thing to get out of TARP and out from under the government's control. After all, the U.S. has been extremely pushy in telling big banks what it can and cannot do, after lending them money during the financial crisis. One of the biggest issues has been over executive pay and bonuses. Again, breaking free of these chains will be a good thing for Citi. In fact, Bank of America (NYSE:BAC) and its repayment to the government should be applauded, which interestingly was reported earlier this month. It was also reported that Wells Fargo (NYSE:WFC) plans on repaying TARP. In some sense, there are some positive aspects. Again, if nothing else, getting out from under the government's heavy hand should help these banks have some flexibility with pay, which will help them recruit and retain good people. (Learn more about TARP, see: Liquidity And Toxicity: Will TARP Fix The Financial System?)
But at the same time the potential for dilution that Citi has should cause concern. On the day the Citi news was being reported, Wall Street wasn't exactly cheering. The fact is that the stock was off 25 cents on some pretty heavy volume on the 14th, which is a sizable amount for a stock floundering under $4.
Also, the one-time high flying financial services company trades under $3.70 currently. That's not horrible, but because the stock has seemingly been stuck in the mud for some time, some may bail for tax loss reasons.
Scoreboard
If all of that weren't enough, the company is also expected to earn just 7 cents a share in 2010. And that too is nothing to get overly excited about, at least in my mind. Actually, all things considered, JP Morgan (NYSE:JPM) looks much more appealing. Not only is the stock trading in close proximity to its 52-week high, but the company is also expected to show sizable profits and very meaningful EPS growth from this year to next. The estimate for 2009 is $2.15 and for 2010 its $3.22.
The Bottom Line
Getting out from under TARP is a good thing. But near-term, the issue of dilution is a concern. Citi's lowly stock price and lack of expectations for the bottom line EPS number should also be of concern.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
IN PICTURES: 7 Forehead-Slapping Stock Blunders
The D Word
In a sense, it is a good thing to get out of TARP and out from under the government's control. After all, the U.S. has been extremely pushy in telling big banks what it can and cannot do, after lending them money during the financial crisis. One of the biggest issues has been over executive pay and bonuses. Again, breaking free of these chains will be a good thing for Citi. In fact, Bank of America (NYSE:BAC) and its repayment to the government should be applauded, which interestingly was reported earlier this month. It was also reported that Wells Fargo (NYSE:WFC) plans on repaying TARP. In some sense, there are some positive aspects. Again, if nothing else, getting out from under the government's heavy hand should help these banks have some flexibility with pay, which will help them recruit and retain good people. (Learn more about TARP, see: Liquidity And Toxicity: Will TARP Fix The Financial System?)
But at the same time the potential for dilution that Citi has should cause concern. On the day the Citi news was being reported, Wall Street wasn't exactly cheering. The fact is that the stock was off 25 cents on some pretty heavy volume on the 14th, which is a sizable amount for a stock floundering under $4.
Scoreboard
If all of that weren't enough, the company is also expected to earn just 7 cents a share in 2010. And that too is nothing to get overly excited about, at least in my mind. Actually, all things considered, JP Morgan (NYSE:JPM) looks much more appealing. Not only is the stock trading in close proximity to its 52-week high, but the company is also expected to show sizable profits and very meaningful EPS growth from this year to next. The estimate for 2009 is $2.15 and for 2010 its $3.22.
The Bottom Line
Getting out from under TARP is a good thing. But near-term, the issue of dilution is a concern. Citi's lowly stock price and lack of expectations for the bottom line EPS number should also be of concern.
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Glenn Curtis
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
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