Citigroup (C) Stock Could Be A Bargain After Record Q3 Revenue

Citigroup has delivered a very strong 3 year share price run, yet the real issue for anyone looking at the stock today is whether that performance is supported by the returns the bank is earning on its capital. With the latest headlines focused on Citi’s ongoing transformation and regulatory clean up, the key valuation question is how much of those capital returns you are already paying for at the current price.

• The share price has climbed 243.0% over the past 3 years, which puts real weight on whether the underlying return on capital profile justifies that kind of move.
• Recent earnings news highlights stronger trading and services income along with ongoing investment in risk and technology, which can influence how efficiently Citigroup turns its capital base into profits over time.
• What if you looked at Citigroup through its earnings instead? See what Citigroup's 11.3x P/E says about the price.

The issue now is whether the returns Citigroup currently earns on its capital are enough to support the price investors are asked to pay after such a pronounced 3 year rise.

If you want a wider view on banks where the focus is also on quality of fundamentals, a focused stock screen is a useful next step, starting with solid balance sheet and fundamentals stocks screener (25 results).

Is Citigroup Still Cheap on Excess Returns?

The Excess Returns model looks at how efficiently Citigroup turns its equity base into profits above the return that shareholders require. In this framework, the key inputs are a Book Value of $115.61 per share and a Stable EPS estimate of $13.52 per share, based on forward-looking analyst expectations for return on equity. With an Average Return on Equity of 10.68% and a Cost of Equity of $10.26 per share, the framework implies Citigroup is earning an Excess Return of $3.26 per share on a Stable Book Value projected at $126.59 per share.

These economics indicate the business is modeled to keep generating returns above its equity cost, which supports an intrinsic value that the Excess Returns projections place substantially above the current share price of $121.69. Because Citigroup recently reported its strongest third quarter revenue in a decade while also lifting guidance and continuing sizeable capital returns, the model’s gap to today’s pricing reflects a view that the bank’s capital efficiency remains underappreciated by the market. Find out what Citigroup could be worth using our Excess Returns estimate.

The Citigroup Narrative: What Would Justify Today's Price?

Citigroup's strong share price run sets up a simple question for you as a holder or potential buyer. What future would need to play out for that performance to look either restrained or over-optimistic? Simply Wall St Narratives sit on the Community page and act as the bridge between that valuation puzzle and the real world, spelling out which growth paths, margin levels and earnings outcomes would need to hold for the stock to be worth materially more or materially less than today. Where a single multiple or model output gives you one number, Narratives lay out the future that number relies on so you can watch over time whether the story still matches what the market is pricing in.

One of the top community narratives on Citigroup: roughly fairly valued

Bearish analysts expect Citigroup’s efforts to simplify the bank and automate processes to be offset over time by higher compliance and technology costs...

Discover why this Narrative puts Citigroup at roughly fairly valued.

One more Citigroup check that belongs next to the price tag

Before you lean too hard on any model, it helps to know who is steering Citigroup and how their pay packets line up with your interests. See who runs Citigroup and how they are paid.

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