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Wells Fargo reiterates Overweight on Citi stock, cites cost control

EditorAhmed Abdulazez Abdulkadir
Published 2024/06/13, 12:14
© Reuters.

On Thursday, Wells Fargo (NYSE:WFC) reiterated its Overweight rating on Citigroup Inc (NYSE:C), with a steady price target of $85.00. The firm's positive outlook on the bank is based on the expectation of a return on tangible common equity (ROTCE) increase from 6% to 10% between 2023 and 2026, despite projections indicating that Citi's Wealth Line of Business (LOB) will likely miss its ambitious growth targets.

The Wealth LOB at Citi is anticipated to underperform against its original objective of a 15%-20% increase, adjusting expectations to a more modest growth from 3% to 10%. However, Wells Fargo notes that the bank is set to implement wealth expense reductions starting in the second quarter of 2024. This cost management strategy is the first initiative led by the newly appointed head of the Wealth LOB, aiming to streamline operations.

The new leadership within Citi's Wealth LOB has prioritized expense control, divesting non-core enterprises, and restructuring the business to capitalize on the bank's scale rather than operating as a collection of smaller, less efficient entities. Wells Fargo has expressed greater confidence in Citi's ability to manage expenses effectively compared to its revenue generation capabilities.

Citi's strategy for its Wealth LOB involves focusing on Asia, which is recognized as the fastest-growing region, enhancing the skills of current staff, and recruiting new talent, including hires from competitors such as Bank of America (NYSE:BAC) and JPMorgan. Additionally, the bank is working on refining the client experience and broadening its range of investment products. These steps are part of Citi's broader efforts to improve performance and achieve growth targets in the coming years.

In other recent news, Citigroup has seen several noteworthy developments. Piper Sandler has maintained an Overweight rating on Citigroup ahead of the company's investor day, focusing on its Services business line, which is considered to be more profitable than the company's broader operations. Citigroup has also launched a 24/7 USD Clearing service in the Middle East in collaboration with Emirates NBD, marking a first in the region. This service aims to streamline cross-border USD transactions, offering flexibility for customers to conduct transactions at any time.

In addition, Viswas Raghavan has assumed his role as the new head of banking at Citigroup, with the aim of revitalizing the bank's services to multinational corporations. Analysts from Goldman Sachs have upgraded Citigroup to a "Buy" rating, based on the bank's business simplification strategy, while CFRA has raised Citigroup's price target from $67.00 to $71.00, expressing optimism about the bank's growth potential.

On the operational front, Citigroup has directed approximately 600 U.S. employees to resume full-time office work, marking a shift from its previous remote work stance. Lastly, a lawsuit has been filed against Citigroup by former managing director Kathleen Martin, with Citigroup stating its intent to contest the lawsuit vigorously. These are the recent developments surrounding Citigroup.

InvestingPro Insights

Amidst the strategic shifts and revised targets at Citigroup Inc, investors can gain a clearer picture of the company's financial health through current InvestingPro data. With a market capitalization of $114.47 billion and a P/E ratio that has adjusted to a more favorable 15.44 in the last twelve months as of Q1 2024, Citigroup appears to maintain a solid position in the market. Additionally, the company has demonstrated a commitment to its shareholders, maintaining dividend payments for 14 consecutive years, with a dividend yield currently at 3.53%.

InvestingPro Tips highlight areas for investor attention, such as Citigroup's weak gross profit margins and a valuation that implies a poor free cash flow yield, which could be significant when considering the bank's long-term profitability and cash management efficiency. However, the bank's status as a prominent player in the Banks industry and analysts' predictions of profitability this year suggest underlying strengths. For those seeking deeper insights, InvestingPro offers additional tips on Citigroup, which can be accessed through their platform.

For investors looking to leverage these insights, remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With InvestingPro, you can explore a total of 7 additional tips that could further inform your investment decisions in Citigroup and other financial securities.

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