ModernGraham Valuation: Citigroup Inc. (C)

moneyCompany Profile (obtained from Google Finance): Citigroup Inc. (Citigroup) is a global diversified financial services holding company whose businesses provide consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, transaction services and wealth management. The Company operates in two segments: Citicorp, consisting of the Company’s Global Consumer Banking businesses and Institutional Clients Group, and Citi Holdings, consisting of Brokerage and Asset Management, Local Consumer Lending and Special Asset Pool. In February 2012, it sold its 9.85% interest in Housing Development Finance Corporation Ltd. In May 2012, it sold 10.1% interest in Akbank T.A.S. In September 2012, the Company sold EMI Group’s recorded music division, EMI Music, to Vivendi and subsidiary, Universal Music Group. In August 2013, Pershing Square Capital Management sold 18% interest to Citigroup Inc.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass all 6 of the following tests: Score = 2/6

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  3. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  4. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
  5. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  6. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass all 3 of the following tests or be suitable for a defensive investor: Score = 2/3

  1. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  2. Dividend Record – currently pays a dividend – PASS
  3. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

Balance Sheet – 9/30/2013 

Total Debt $221,593,000,000
Total Assets $1,899,511,000,000
Intangible Assets $32,566,000,000
Total Liabilities $1,698,665,000,000
Outstanding Shares 3,033,000,000

Earnings Per Share

2013 (estimate) $4.46
2012 $2.49
2011 $3.59
2010 -$7.60
2009 -$64.20
2008 $7.20
2007 $42.50
2006 $38.20
2005 $32.60
2004 $34.20

Earnings Per Share – ModernGraham 

2013 (estimate) -$2.42
2012 -$7.81
2011 -$9.88
2010 -$10.00
2009 -$3.71
2008 $28.00

Conclusion:

Citigroup Inc. presents a rare situation.  The company had a large loss in 2008 due to the financial meltdown, and this loss is still affecting the analysis through the ModernGraham model.  It would be very easy to modify the model at this point to eliminate the effect of the 2008 loss, under the rationale that it was an extraordinary event that is not likely to be repeated.  However, that would in essence ignore the fact that the company did lose money in 2008, at a rate that is so high that the company is still recovering from it.  One cannot simply overlook a loss, regardless of the circumstances.  Losing money is losing money, and one of the 7 Key Tips to Value Investing is to not lose money, whether that is at the corporate level or at an individual shareholder level.  Therefore, until the EPSmg (normalized earnings) have recovered from the significant losses of the 2008-2009 period, Citigroup will not be considered suitable for either the Defensive Investor or the Enterprising Investor.

What do you think?  Is the company not suitable for Defensive Investors or Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Citigroup Inc. (C) at the time of publication and had no intention of changing that position within the next 72 hours.

Photo Credit:  Andrew Magill


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