Subscribe to our newsletter

UBS Upgrades Citi NYSE:C to Buy

The financial sector took a severe beating during the mortgage and housing market meltdown that drive the US into recession in Y 2008.

Now after 5 yrs of bailouts and rebuilding, the banking sector has come back to help lead the charge to new highs for the stock market.

In a report issued today UBS AG (NYSE: UBS) thinks there is lots of upside for investors looking to own
money center banks

Following a round of stress tests, all but one US bank passed with reasonably good numbers.

The analysts at UBS believe that the overall situation at Citigroup Inc (NYSE: C) may be the most favorable of all the large banks.

They see upside from Citigroup will be driven by the following 4 drivers, over the next several years:

1.The earnings headwind from Citi Holdings should start to fade this year.

2.The reduction in risk weighted assets (RWAs) in Citi Holdings could free up more than $10-B in trapped capital in just the next 2 yrs.

3. Management’s new efficiency ratio adds about $0.75 per share in earnings versus UBS estimates.

4.The deferred tax assets (DTA) will release tremendous amounts of capital over time, and the team at UBS found that none of that accretion is priced in to the stock.

Plus, they see Citigroup as a lagging play on the housing recovery. Citigroup has more capital trapped on its balance sheet than any other universal bank, and the analysts firmly believe a healing housing market and moderately improving economic outlook in the US provides a needed driver for Citigroup to release it.

Shares closed Friday at 46.49, and UBS raised its price target from 43 to 63. The Wall St. consensus price target is 50.

The bottom line is that quality bank stocks have raised their capital levels well above what they used to hold as a precaution against another economic meltdown. With an improving economy and housing market, the time may be just right to see the Best of the Big Banks go higher.

LTNs Analysis for C: Overall Short Intermediate Long
Bullish (0.28) Bullish (0.25) Bullish (0.31) Bullish (0.29)