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Citigroup Inc Valuation – December 2015 Update $C

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Citigroup Inc (C) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Citigroup Inc. (Citi) is a financial services holding company, whose businesses provide consumers, corporations, governments and institutions with financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, trade and securities services, and wealth management. The Company operates through two primary business segments: Citicorp and Citi Holdings. Citicorp consists of the operating businesses: Global Consumer Banking, which consists of consumer banking in North America, EMEA, Latin America and Asia, and Institutional Clients Group, which includes Banking and Markets and securities services. Citi Holdings contains businesses and portfolios of assets that Citi has determined are not central to its core Citicorp businesses. Citi’s consumer operations, as well as the consumer finance business in Korea and certain businesses in ICG form part of Citi Holdings.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of C – December 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass all 6 of the following tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $156,784,483,754 Pass
2. Earnings Stability Positive EPS for 10 years prior Fail
3. Dividend Record Dividend Payments for 10 years prior Fail
4. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -298.33% Fail
5. Moderate PEmg Ratio PEmg < 20 13.83 Pass
6. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 0.71 Pass
Score
Enterprising Investor; must pass all 3 of the following tests, or be suitable for the Defensive Investor.
1. Earnings Stability Positive EPS for 5 years prior Pass
2. Dividend Record Currently Pays Dividend Pass
3. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

C value Chart December 2015

EPSmg $3.81
MG Growth Estimate 15.00%
MG Value $146.58
Opinion Undervalued
MG Value based on 3% Growth $55.21
MG Value based on 0% Growth $32.36
Market Implied Growth Rate 2.66%
Current Price $52.65
% of Intrinsic Value 35.92%

Citigroup Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years along with the inconsistent dividend history.  The Enterprising Investor has no initial concerns. As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from a loss of $6.47 in 2011 to an estimated gain of $3.81 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 2.66% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Citigroup Inc (C)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

C Charts December 2015

Graham Number $91.16
PEmg 13.83
PB Ratio 0.71
Dividend Yield 0.23%
Number of Consecutive Years of Dividend Growth 1

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Sep15
Long-Term Debt $213,533,000,000
Total Assets $1,808,356,000,000
Intangible Assets $28,090,000,000
Total Liabilities $1,587,508,000,000
Shares Outstanding (Diluted Average) 2,996,900,000

Earnings Per Share History

Next Fiscal Year Estimate $5.35
Dec14 $2.20
Dec13 $4.35
Dec12 $2.44
Dec11 $3.63
Dec10 $3.54
Dec09 -$8.00
Dec08 -$56.30
Dec07 $7.20
Dec06 $43.10
Dec05 $47.50
Dec04 $32.60
Dec03 $34.20
Dec02 $29.40
Dec01 $27.20
Dec00 $26.20
Dec99 $21.70
Dec98 $13.10
Dec97 $13.70
Dec96 $12.10
Dec95 $9.20

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.81
Dec14 $3.10
Dec13 $2.77
Dec12 -$2.33
Dec11 -$6.47
Dec10 -$8.38
Dec09 -$7.33
Dec08 $0.28
Dec07 $30.02
Dec06 $40.07
Dec05 $37.10
Dec04 $31.24
Dec03 $29.62
Dec02 $26.06
Dec01 $23.05
Dec00 $19.77
Dec99 $15.69

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for Value Investors with a High Beta – November 2015
The Best Companies of the Banking Industry – October 2015
10 Companies Benjamin Graham Would Invest In Today – October 2015
15 Best Stocks For Value Investors This Week – 9/4/15
Citigroup Inc. Analysis – September 2015 Update $C

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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