Wells Fargo has named Citigroup (C) its top pick and expects shares to double over the next three years as the bank’s ‘metamorphosis’ takes hold.
In an interview on Yahoo Finance Live, Wells Fargo analyst Mike Mayo said Citi is ‘ripping the guts out’ of the bank and ‘restructuring in a way they haven’t done in modern history.’
“Citi has the worst in class efficiency, returns, and stock price valuation, but incremental change can make a huge difference,” Mayo explained. “There will be additional visibility.”
Mayo added: “They’re modernizing the back office. They have a range of business exits, especially non-US consumer banking, which has been a fail for the last half century, so the upshot of this is, we think, significantly improving efficiency, returns, and stock price over the next three years. We see a double in the stock, not without risk.”
Mayo maintained his “Overweight” rating on the bank and raised his one-year price target to $70 per share from $60.
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Nicholas Jacobino
Video Transcript
SEANA SMITH: Wells Fargo out with a more bullish call here and Citigroup Analyst Mike Mayo seeing that the stock– saying that the stock could more than double to over 100 bucks per share over the next three years. We wanna bring him in now joining us here on set, Mike Mayo, Wells Fargo’s managing director.
Mike, it’s great to have you here in studio. So let’s talk about that bullish call here for Citi in terms of the catalyst. A number of changes have been made here under CEO Jane Fraser what makes you so positive about Citi’s story at this point?
MIKE MAYO: Well, we did come out with a 50-page signature research report. And so we put a lot of work into this. And as you know, I’ve covered the company for about three decades. And I think this is the CEO Jane Fraser’s moment of truth.
Three years from now, she could potentially be banker of the year, or she could potentially be out of a job. So the range of outcomes for the CEO is quite wide. I will say, I think Citigroup is kind of ripping the guts out of the inside and restructuring it in a way they haven’t done in modern history.
They have org simplification where they’re reducing management layers from 13 down to 8. They have a transformation where they’re modernizing the back office. And they have a range of business exits, especially non-US consumer banking, which has been a fail for the last half century.
So the upshot of this is we think significantly improving efficiency, returns, and stock price over the next three years as we see a double in the stock, not without risks. If there is a recession, then it could be a lot of downside for Citi. But absent of recession, our range of scenarios shows a very nice reward-to-risk ratio.
Source: finance.yahoo.com
