Is Citigroup Inc (NYSE:C) A Reliable Value Investment?

November 16, 2017, 15:14 pm ET, BY Simon M.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

Citigroup Inc (NYSE:C) is currently trading at a low valuation in comparison to other big American banks such as JPMorgan Chase & Co. (NYSE:JPM) as rated through its P/E ratio. However, for a company to qualify as a reliable value investment, it must have strong fundamentals that are projected to keep improving over the long term.

Article Summary

Citigroup is currently trading at a lower valuation as compared to other major banks.

The company has strong financials, which make it a reliable value investment.

The impact of the recent arrests in Saudi Arabia is yet to be determined.

Here’s the trading report on Citigroup.

Major US banks have been underperforming the overall stock market ever since the 2008 financial crisis, despite the rest of the market having rallied higher in the last few years. Therefore, Citigroup can be classified as a value investment if it trades at lower ratios as compared to the other big US banks.

Firstly, Citigroup trades at a lower PEG ratio as compared to its peers such as JP Morgan, Wells Fargo & Co (NYSE:WFC) and Bank of America Corp (NYSE:BAC). Citigroup’s current PEG ratio is 1.26 as compared to JP Morgan’s PEG ratio of 1.59; Wells Fargo and BofA have PEG ratios of 1.85 and 1.37 respectively.

Citigroup also have a lower P/E ratio that its competitors given that it trades at a P/E ratio of 13.83 as compared to JP Morgan’s 14.08, Wells Fargo’s 13.90, and Bank of America’s 15.54. Now that we have established that Citigroup is quite undervalued as compared to the overall US banking majors, it remains to be seen whether the company has improving fundamentals.

Just recently, the company doubled its quarterly dividend payout to $0.32 per share with the approval of the Federal Reserve. The bank also initiated a share buyback program valued at $15.6 billion over the next four quarters. The only reason why the Federal Reserve would allow such massive cash distributions is if the bank has proven that it has a solid underlying business.

The above indicates that indeed Citigroup is a reliable value investment. However, recent news reports from Saudi Arabia indicate that the bank manages a large percentage of the wealth of some of Saudi billionaires being investigated by the Saudi government. It is still not yet clear what the impact of the arrests and investigations shall be on banks with numerous wealthy clients in the Region including Citigroup.

The bank’s future prospects appear quite promising given the ongoing economic recovery in its core American market as well as in other developed economies globally.

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