Citi to $6? Four Things Need to Happen
Citigroup takes the earnings stage on Tuesday, Jan. 18. Don’t expect it to produce the kind of numbers that JPMorgan Chase put up, but there are things the company can do to keep the share price climbing. Here they are, according to Cramer.
1. Citi must show a profit. And not just the 8 cents a share the Street is expecting. Cramer wants 10 cents. Any less and he bets the stock sells off, maybe as much as 7 percent. (That’s the average Citi has declined after all earnings reports but one over the past two years. The stock has a history of running up ahead of the report and then falling after.)
2. Cramer will also be looking for signs that Citi is even more international a bank than it has been. Right now, 60 percent of the business comes from overseas operations. If that number reaches 65 percent, he thinks investors will stop comparing Citigroup to other American banks. It will then be considered a financial emerging-growth play, which is one of the main reasons Cramer likes it.
3. While Cramer cares little about this, a lot of people want CEO Vikram Pandit to announce a reverse stock split. It’d provide more of a morale boost than anything else, Cramer said. He’d rather hear news of a dividend, though Pandit has already ruled it out.
4. Citi has separated its worst-performing loans into Citigroup Holdings, the so-called bad bank. And though the company has been incrementally selling them off, or saying that the remaining loans aren’t that bad, investors are still wary. They, along with Cramer, will want to know that Citi Holdings is no longer needed or that those improved loans are worth moving back to Citi proper. In fact, Cramer said he wants to hear about how the credits in the bad bank are holding up even more than about credit-card losses or loan reserves.
“We get good news on all four of these,” Cramer said, “then this stock’s off to the races—with the next stop $6.”
If not, though, Cramer thinks the stock holds at $5 until next quarter. This, of course, is no reason to sell the stock. Instead it’s a reason to wait for the quarter to come and go, and see if Citi sells off as it has these last couple of years. It’s certainly run enough in just these first few weeks of 2011—8.5 percent—so hold tight to see what happens.
The worst-case scenario here is that you get to buy more at a discount, which wouldn’t be a bad things as Cramer predicts this one’s going to $12 by the end of 2012.
When this story published, Cramer's charitable trust owned JPMorgan Chase.
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