Citigroup Inc (NYSE: C) and other banking majors have lately been facing rising delinquencies in the commercial real estate sector.
The firm is capable of delivering cost reductions, and has "significant capacity" to either repurchase stock or expand its balance sheet, "especially if Basel 3 Endgame (B3E) rules change materially," according to Goldman Sachs.
The Citigroup Analyst: Richard Ramsden upgraded the rating for Citigroup from Neutral to Buy, while keeping the price target unchanged at $68.
The Citigroup Thesis: Citi is likely to generate revenue growth at a CAGR (compounded annual growth rate) of 4% to reach $85.7 billion in 2026, beating the current Street expectations, Ramsden said in the upgrade note.
"We view C's medium-term cost save target of $2.0-2.5bn run rate as plausible, and we believe that the ongoing organizational simplification (20k headcount reduction), elimination of stranded costs, and realization of productivity savings from transformation could eventually moderate the expense curve towards the end of 2026E," the analyst wrote.
He added that Citi's costs could decline from around $54.3 billion in 2023 to about $51.8 billion in 2026, 2% below the current Street estimates of around $52.7 billion.
"We expect some acceleration in buybacks (+$1bn/+$4bn) in 2024E/25E YoY, albeit off of a low base in 2023 (buybacks were down 40% YoY), driven by a stronger economic outlook, as well as the improvement in C capital generation as one-off charges roll off," Ramsden further stated.
C Price Action: Shares of Citigroup had declined by 1.11% to $57.12 at the time of publication on Thursday.