Meredith Whitney may think that Citi is screwed, but analysts at Lehman don’t. After dissecting Citigroup CEO Vikram Pandit’s turnaround plan, Lehman concludes that the struggling bank is “heading in the right direction.” Lehman is particularly upbeat about Pandit’s proposed asset sales and expense reductions:
We believe [Citi’s] intermediate outlook is encouraging amid significant reductions in both non-core assets ($500B, 22%) and expenses ($15B, 24%)…
Lehman is also positive about Citi’s financial targets as well as its plan to raise more capital through additional asset sales and retained earnings:
[The firm’s] financial targets look solid to us and include roughly 9% revenue growth, a 58% efficiency ratio (62% currently), over $20B in net income and a 16-18% ROE (closer to 18-20% once incremental capital is deployed). Additionally, it expects to generate over $40B in incremental capital over the next 2-3 years through retained earnings and asset reductions.
Finally, Lehman concludes, Citi can achieve its long-term earnings targets:
Its net income target equates to EPS of roughly $3.50 on proforma shares. We had thought it would take the company until 2011 to reach this figure, and it appears it believes it can do it sooner. While initial investor reaction appears muted, due to scepticism toward management executing on what it laid out, we believe it is headed in the right direction.
Shares remain rated 1-Overweight and target price remains $34. Citi-killer Meredith Whitney, meanwhile, thinks the stock will plummet well below $23.
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