As shares of Citigroup Inc. continue to strengthen, a recent investor survey suggests the stock remains under-owned.
Deutsche Bank, which rates Citi a Buy with a US$5.50 price target, sent a list of questions out to clients on February 18. It received 83 responses showing that 49% don’t own Citi. Of those who do, 38% are underweight. That means 68% don’t own the stock or are underweight.
Other than the government stake, the biggest near-term concerns cited were Citi Holdings (a unit that includes the Smith Barney brokerage and a variety of businesses and riskier assets that may be sold), low long-term earnings power and credit uncertainty.
Citi raised capital in December and 40% of respondents bought at the time. Of those, 82% still hold the stock.
As for what the Treasury should do with its stake, 28% believe it should sell as soon as the March 16 lockup expires, 26% believe the shares should be dripped into the market over time, and 11% believe the Treasury should hold out for a profit.
Among survey respondent who plan to buy Citi share, 42% expect to sell another bank stock to do so. Of this group, 39% would sell Bank of America and 21% would sell J.P.Morgan.
In terms of Citi’s most favourable long-term attributes, a strong international franchise and related growth was cited by 59%. Its biggest weakness is considered to be a damaged brand, U.S. retail banking, Citi Holdings and an unclear strategy.
In one year, most expect the stock will be in the low US$4 range. In five years, nearly half see Citi shares above US$7, while one third expect the stock to be between US$5 and US$7.