Why Does Goldman Like Citi So Much?

InvestorsShares of Citigroup (NYSE:C) enjoyed a boost of nearly 1.5 percent following an endorsement from Goldman Sachs (NYSE:GS). Goldman, which once again was the top M&A adviser in 2012, placed Citi on its “conviction buy” list with a price target of $49.

Bloomberg reports that the decision was made in part because of optimism surrounding Citi’s new CEO, Michael Corbat. Analysts believe Corbat “is poised to improve returns and increase efficiency,” and that Citi’s shares “are mispriced given the company‚Äôs core earnings power, especially considering further restructuring could generate additional upside for shares.”

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That restructuring includes cutting about 11,000 jobs and pulling away from markets like Turkey and Pakistan. The company will take a $1 billion charge over the workforce reduction. The plan was announced at the beginning of December, and shares were up 20 percent for the month.

Citi knocks JPMorgan (NYSE:JPM) off of Goldman’s conviction buy list — not because it has performed poorly, but because they have fewer opportunities to increase profits. Shares of Citi climbed nearly 47 percent over the last 52 weeks, and Goldman’s price target represents nearly 16 percent upside compared to Thursday’s closing price. They see that growth fueled, at least in part, by Corbat’s competent restructuring plan.

Goldman might also like Citi’s 9 percent gain in fees collected in 2012. Over the same period, JPMorgan’s total collected fees dropped 3 percent. For its part, Goldman’s fee collection grew 4 percent.

According to Street Insider, the Goldman analysts point out that “shares traded at a discount to peers (7.6x 2014E EPS vs. 11x for peers), despite the fact it has considerably more levers to protect and grow earnings in a difficult revenue environment.”

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