Citigroup - Brand Name Watch

[HenryTo]

In our commentary exactly a week ago, I stated that I will endeavor to expand our thoughts on the recent performance of the top global brand names as ranked by Interbrand.com. You can find the Top 100 Global Brand listing at the following link:

http://www.ourfishbowl.com/images/surveys/best_global_brands_2005.pdf

I now want to take a closer look at Citigroup - which ranks number 12 on the list but most importantly, the highest ranking financial services company on the list (American Express comes second at no. 14). Let's take a look at the chart:

http://stockcharts.com/gallery/?c

As one can see, C actually made its high during March of 2004, or approximately 18 months ago. A secondary and lower high was made in February earlier this year. This was more than seven months ago. Since then, C has significantly underperformed, despite the respectable performance of the S&P 500 over the same period. Relative strength also peaked in March 2004 and has trended down since then.

Conclusion: When the shares of the financial services company with the most valuable global brand in its industry has been performing so woefully, it is time to take notice. Coupled with a still-hawkish Fed, chances are that it is generally not a good time to be buying common stocks right now, despite the fact that the major market indices are still holding their own.

[nodoodahs]

Reuters has a "ProVestor Plus" report, and they do a 10-year summary that includes high/low price and PE as well as ten years of balance sheet, income statement, and cash flow statement in PDF format. I don't think much of the buy/sell/hold recommendations in those Reuters reports, but the amount of data is excellent.

Don't forget, I threw some technical analysis in there, too. I'm trying to broaden my horizons!
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.

[HenryTo]

Good fundamental analysis, Bill. Just curious - where did you get your 67.4x multiple from?

Thanks,

Henry

[nodoodahs]

C had a high PE in 2004 of 67.4x earnings. Given that their industry typically has low PE due to the opacity of their financial statements, this was a huge stretch. And it wasn’t because of an earnings shortfall, either – their EPS was pretty consistent throughout the last few years.

Check this chart.
http://finance.yahoo.com/q/ta?s=C&t=2y&l=off&z=l&q=l&p=m20,m100,v,b&a=r14&c=
See how overstretched C was compared to the 20-day average, 100-day average, and Bollinger bands at that March 2004 high.

Check this table.
http://biz.yahoo.com/p/410mktd.html
The 8 largest players in the industry trade between 10 and 20 times earnings. C is at 11, but this may be because of a negative earnings surprise in June, see below, also note that their EPS estimates have been trending down over the last 60-90 days and that is another reason for trading at the low end of the PE range for the “money center banks.” Lastly, see that they are projected to have negative EPS growth this quarter. All of these contribute to trading down in their industry’s range.
http://finance.yahoo.com/q/ae?s=C

If someone bought C in March 2004, they grossly overpaid. The price was stretched completely beyond reason and that’s the reason for C’s stock price underperformance, IMO. I’m unconvinced that it has anything to do with, or any impact on, the broader market (other than contribution to the index performance due to C’s weight in it) or implications for the brand. This is a story of a stock whose price outpaced its performance …
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I haven’t seen a beatin’ like that since somebody stuck a banana in my pants and turned a monkey loose.