Citi could beat expectations in 2020, Goldman says in upgrade

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Citigroup can beat consensus expectations in 2020 regardless of higher interest rates or stronger global growth, and is well positioned for potential supply chain shifts in Asia, Goldman Sachs said in an upgrade of the stock to buy from neutral.

Analyst Richard Ramsden said in a research note that he sees "a realistic path" to a 13% return on tangible common equity, or Rotce, in 2020, which would top market expectations by 100 basis points. "The market is overly pessimistic on Citigroup's revenue growth inflection, targeted expense savings, and outlook for credit costs given the improvement in the risk profile of their international loan book," he said.

Citigroup's ability to keep getting better in 2020 will likely become key for stock valuation in the coming months, he said. He added that Citigroup has the lowest sensitivity in Goldman's coverage to "both short-end rate movements and to the long end of the curve, suggesting their return improvements are the least dependent on fluctuations in the yield curve."

And he noted that Citigroup's valuation discount versus its peers is the widest since the financial crisis, factoring in an improvement in Rotce.

Those aren't the only things prompting the upgrade. The bank's "global footprint and on-shore presence in Asia positions them relatively well to benefit from a potential shift in trade flows should trade tensions escalate further, causing companies to diversify supply chains," Ramsden said.

Bloomberg News