Top banking analyst Mayo thinks his No. 1 pick could double over the next 3 years

Published Tue, Jan 2 202410:09 AM ESTUpdated Tue, Jan 2 202411:02 AM EST

Citigroup 's transformation could lead to a sizable investment opportunity, according to Wells Fargo. Analyst Mike Mayo increased his price target on Citigroup by $10 to $70, citing the Federal Reserve's newfound optimism on interest rate cuts this year and continued progress in CEO Jane Fraser's restructuring efforts . The new target suggests Citi could jump more than 36% over the next 12 months versus its close at the end of 2023. On the first trading day of the new year, the stock traded 0.9% higher at almost $52, bucking a decline in the broad market. Citigroup's stock fell to a two-year low of about $38 per share on Oct. 27, as it continued its yearslong struggle against U.S. bank peers JPMorgan and Bank of America , partly due to its substantially smaller domestic retail banking presence. Citi's headcount and expenses had also swelled in recent years. Shares of Citi have been on a path to recovery since that October low, however, as Fraser's reorganization took hold, with layoffs beginning in mid-November. The overhaul, dubbed "Project Bora Bora," was announced in September to divide the bank into five divisions, cut down management layers and accelerate decisions . In light of these changes, Mayo expects Citi's stock price to double to $100 over the next three years. Earnings per share should double to $10 from $5 due to greater efficiency and buybacks, aided by cost savings from Citi's record headcount reduction, the analyst wrote in a Monday note. He added that Citi's management "delayering," tech modernization, transition from dozens of universal banks to five main lines of business will combine to make Citi "more simple and profitable." "We [estimate] Citi's market value prices it for a recession, implies returns equal to only half its 3-year target, and seems almost fully attributed to one business line ('Services' - 1/4 of the firm) with almost no additional value for the rest of the firm," Mayo wrote. "What seems most underappreciated are the strategic benefits of its 95 country wholesale network (est. 60% core Citi) and the financial reversal from expense growth after a 1/4 increase over 3 years." Citi's earnings can accelerate long term, between the end of 2024 and beyond, assuming the bank is successful in executing its multiyear restructuring efforts, Mayo said.