Nov 27, 2007

Richard Bove on Citigroup: "Best banking franchise in the world," expects stock to double

[Citigroup] stock is now yielding 7%. The company has a $24 billion free cash flow. The dividend costs the company roughly $10.5 billion. So the company has no problem in paying that dividend. In addition, the company is perceived by at least the Federal Reserve, the FDIC, to be a well capitalized bank, which means that it's paying the lowest FDIC premium possible... If you don't have to worry about the dividend, if it is a well capitalized institution, then as these writeoffs dissipate over the next few quarters, then the earnings of Citigroup will start to rise again.

And the stock is just not reflecting that. All it's reflecting is the worst of the worst... There's a generalized panic out there; there's a hysteria. Each analyst is jumping on top of the other one, trying to argue for a bigger amount of writedown... And as a result of these, if you will, cacophony of misery that's coming out of the analyst community, these stocks have fallen to levels which are just unrealistic in terms of what the fundamentals of the companies offer.

If people want to look through the cycle, if they want to look through the writeoffs, I think from a current price of $29-30 a share, over the next couple of years the stock should double in price... The company's earnings power is considerable. It's the best banking franchise in the world... The value of that franchise is simply being lost as people worry themselves to death over what the size of the next writeoff will be.

~ Richard Bove, Punk Ziegel & Co., Bloomberg Video, November 27, 2007

(Citigroup stock closed at $30.32 per share, down $0.38.)

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