Buffett seems to have faith in Citigroup. So does Odeon Capital Group analyst Dick Bove, who rates Citi a “buy” with a target price of $57.35, which would be a 21% gain from the stock’s closing price of $47.46 on May 16. This is because Citi is now “one of the strongest companies in the nation,” Bove wrote in a note to clients on May 7.
Citi’s “cash equals $272 billion or 2.7x its market capitalization and 1.5x its commonequity,” Bove wrote.
Based on the updated market cap for Citi on the first table, above, its cash is now worth 2.6 times its common equity. Bove added that with loans making up only 28% of assets and 50% of deposits, and with most of its securities investments having “some type of government guarantee,” it was “not unfair to argue that this is a fortress balance sheet.”
So Bove’s thesis for Citi isn’t that it will be such a strong performer over the short term, especially if the U.S. is heading into a recession, as Bove expects. This is a long-term play for him, and probably for Berkshire Hathaway as well.
“Investors are completely misreading this company’s risk. It is cash- and securities-rich. The stock simply does not reflect this,” Bove wrote.