The market cannot seem to make up its mind about Citigroup Inc.
Prognosticators on the CNBC television show "Louis Rukeyser's Wall Street" talked the stock up over the holiday weekend, but Prudential Securities' Michael Mayo on Monday joined a growing list of analysts cutting estimates on Citi.
Citing weak capital markets activity, worries about its exposure to Latin America and the possibility that it would have to pay fines in connection with ongoing investigations into Wall Street's underwriting and research practices, Mr. Mayo reduced his estimates on Citi for 2002 by 5 cents, to $3.15 a share, and for 2003 by 10 cents, to $3.50 a share. The cuts put him 5 cents below consensus for this year and 20 cents below consensus for next year.
Seven months ago Mr. Mayo lowered his recommendation on Citi shares to "hold" from "buy," and in that time its stock has fallen to $39 from around $50. It fell 2.7% in trading Monday on a down day for the markets. The Dow Jones industrial average, of which Citi is a component, fell 1.1%. The American Banker index of 225 bank stocks fell 0.5%.
Some investors, and analysts including Mike Holland, a portfolio manager at Holland & Co., see the current stock price as evidence of a buying opportunity. On the "Rukeyser" program Mr. Holland said that he had been buying Citigroup because of its management strength. But Mr. Mayo said he believed its 2002 and 2003 growth projections were unrealistic. "It is not time yet" to be so upbeat, he said in an interview.
In the last couple of weeks all but four of the 16 analysts who cover Citigroup cut their estimates on its 2002 earnings, according to Thomson/First Call. Some have even been reducing second-quarter estimates: Credit Suisse First Boston's Joan Solotar last week slashed her estimate on Citi for that quarter to 74 cents a share from 82 cents and said that more than half of the reduction was to account for Citi's exposure to potential losses from WorldCom.
Last month, Citi said its net credit losses related to WorldCom would be "negligible."
Citi is scheduled to report its second-quarter results next week.
The company's troubles should continue into 2003, Mr. Mayo said in his research note Monday. The consensus of $3.71 for next year was based on "overly optimistic assumptions regarding higher capital markets revenues, lower commercial credit costs, and a stabilizing Latin America," he wrote.
Mr. Mayo also faulted the consensus view that Citigroup would have 16% earnings-per-share growth this year. He said the company itself has been telling investors to look for growth in the double-digit range and that he interprets that to mean closer to 10%.
During last year's market slump, the company's profits from consumer banking at home and abroad helped lift its earnings overall, but the first quarter of this year showed the limits of its diversity.
Excluding a $1.06 billion gain from the spinoff of its Travelers Property Casualty Corp. unit, Citi had first-quarter earnings per share of 74 cents, 4 cents below the consensus, because of charges related to losses in Argentina and private equity investments.
