Renegade bank analyst Mike Mayo is bullish on Citigroup Inc. (C), predicting its stock price to double over the next four to five years.

In his first research note to investors since joining Wells Fargo Securities, the veteran banking analyst highlighted Citi as his top pick, expecting it to post the best improvement in return on equity (ROE) and cost of capital among any of its large bank peers. Mayo was previously with now-shuttered CLSA Americas, the U.S. arm of the Chinese-owned broker CLSA, which closed earlier this year.(See also: Why Citigroup's Shares Could Rise 50% to $100.)

Positive Long-Term Outlook

For the first time in two decades, the Wells Fargo analysis suggests banks are creating value rather than destroying it. Returns have been rising while firms have successfully mitigated business risk and cost of capital. However, as investors still remember the sting of the financial crisis, Mayo says bank stocks have become "show me" stories. 

Trading down 0.3% at $67.01 on Friday afternoon, Citi stock reflects an approximate 48.6% gain over the past 12 months and a 12.8% return year-to-date (YTD). Mayo foresees the lender’s ROE improving from about 7% in 2016 to 9% in 2019 and 11% by 2021, driven by buybacks, which should reduce Citi’s shares outstanding by about a third over the next five years. In June, the Federal Reserve gave a green light for Citigroup to repurchase $15.6 billion of stock and pay $3.3 billion in dividends over the next 12 months.

Missing Targets

Despite his upbeat forecast, the new Wells analyst suggests Citi will most likely miss its recently announced targets. At the bank’s investor day last month, management forecast Citi’s 2019 return on common tangible equity to reach 10%, rising to 11% in 2020 and 14% over the longer term.

Mayo also noted that he prefers Goldman Sachs Group Inc. (GS) over Morgan Stanley (MS), which he rates at outperform and market perform, respectively. (See also: Why Techs, Banks Will Lead in 2nd Half: Goldman.)

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