Citi Splits: What Does This Mean Long-Term?
Nothing came out of the emergency meeting of European finance ministers over the weekend. Commodities are bouncing, including silver up 4-5 percent this morning.
1) Citigroupsplit 1 for 10 at the close Fridayand is trading down pre-open. What does this mean for the stock price long-term? Getting the price to the mid-$40s seems designed to attract funds who cannot own low priced (below $5 stocks)—the exact number of investment potential of this group is unknown but the Street believes it is a substantial group. And even a measly $0.01 dividend at least allows companies that can't own non-dividend payers to own it.
Ultimately, valuation will be determined by how much the various Citi businesses can earn in the next couple years. To say that banks are unloved is an understatement: they are positively despised on the Street.
The downside is the huge drop in volume we will now see. As I have noted time and again, Citi was a major source of business for high-frequency traders looking to collect a rebate on a high-volume, low-priced stock. That volume—which has varied from about 350 million shares a day to 500 million—will now likely drop to 35 million to perhaps 50 million.
That means that consolidated volume at the NYSE, already well below last year's volume, will go from about 4.4 billion to 4 billion or less.
Already, there is talk that other low-priced stocks will attract more attention from high frequency traders, including Sprint Nextel and Lucent , both in that magic $5-$6 trading range. But they're kidding themselves: Sprint Nextel does perhaps 50 million shares a day, Lucent about 30 million, small potatoes compared to Citi.
2) McDonald's rises 1 percent after reportingbetter than expected April comps. Once again though, comps at its overseas restaurants grew more than here at home (up 6.5 percent in both Asia and Europe vs. up 4.0 percent in U.S.).
3) Dollar Thrifty rises 9 percent after receiving a $2.4 billion bid from rental car rivalHertz . Dollar Thrifty shareholders would get $72 in cash and stock—significantly more than Hertz's failed bid of nearly $51 per share last year. Hertz's new bid is also 24 percent higher than the offer Dollar Thrifty accepted from Avis Budget . However, that agreement has been heavily scrutinized by regulators on antitrust concerns, and approval of the deal is still quite uncertain.
4) Sysco rises 5 percent after topping estimates ($0.46 vs. $0.42 consensus) as higher prices and volumes largely offset higher food inflation costs. The provider of food and restaurant/catering supplies to the foodservice industry saw its costs rise 5.1 percent—a big contrast to the nearly 1 percent deflation it saw last year at this time.
5) Earnings season is mostly over, but we will be hearing from retailers beginning this week—remember they typically report a month later, so we will be hearing about the February-April quarter. Kohl's , Macy's and Nordstrom are among those reporting this week.
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