Ian Lapey says Citi stock ‘massively undervalued’ after Q3 earnings

Citigroup Inc (NYSE: C) opened in the green this morning after reporting market-beating results for its third financial quarter.

What drove strength for Citi in the third quarter?

The financial services behemoth attributed much of the strength in its recently concluded quarter to its treasury business and the core banking services – with the former actually printing its best quarterly performance in a decade.

The earnings release arrives only days after Citigroup said it will unload its consumer-wealth operations in China to HSBC. Of the fourteen markets it operated, the New York listed firm has now pulled out of eight.

It will quit Indonesia as well by the end of this year and is committed to pulling the curtains on its operations in Russia and Korea.

Citi is also considering listing Banamex in Mexico.

Is Citi stock worth buying today?

Note that Citi stock is currently trading at about half its price before the pandemic – which spells “massively undervalued”, as per Ian Lapey of Gabelli Global Financial Services Fund.

Speaking recently with CNBC, Lapey said he has “C” as one of his top holdings because it is “strongly financed”. The bank stock is all the more attractive at the current price as it has improved its tangible book from 70 to 85 over the past four years.

The portfolio manager likes Citigroup also because he has confidence in its management.

Other prominent names that are constructive on Citi stock include Mike Mayo. The Wells Fargo senior analyst recently reiterates his “buy” rating on the financial services firm citing its improving capital position and the restructuring it has announced.

His $55 price target suggests about a 30% upside in “C”.

Citigroup third-quarter financial highlights

• Earned $3.546 billion versus the year-ago $3.479 billion
• EPS remained unchanged at $1.63 as per the press release
• Revenue jumped 9.0% year-on-year to $20.1 billion
• Street had forecast $1.22 a share on $19.27 billion revenue
• Credit costs at $1.8 billion were roughly the same as Q2

Last month, Citi said it was dividing into five business lines as part of its biggest reorganisation in some fifteen years and “the five core, interconnected businesses each posted revenue growth” in the third quarter despite headwinds, as per CEO Jane Fraser.  

On Thursday, she reiterated that the restructuring “will unlock significant value for shareholders”.

It is worth mentioning here that the changes are unlikely to reflect in Citi’s financial results until the Q4.