Citigroup (C) is likely to outline a path to "mid-teens" returns on tangible common equity at its May 7 Investor Day after posting a strong Q1 beat across fees, net interest income, expenses and buybacks, Morgan Stanley said in a report Wednesday.
The investment bank raised Citigroup's price target to $144 from $140, reiterated an overweight rating and a "top pick" status, citing another quarter of "ROTCE improvement" and better-than-expected capital returns, including $6.3 billion in buybacks versus $4.4 billion expected, according to the report.
"[E]xpense ratio and buybacks" remain the key levers for further returns improvement, with Citigroup reporting a 58% expense ratio in Q1, below consensus of 61%. The investment bank models the bank's expense ratio to continue its descent, reaching 56.4% by 2030 as transformation projects reach 90% completion, "up from 80% last quarter," the report said.
Citigroup ruled out acquisitions of a "regional bank" and remains focused on "organic growth," with strong performance across core businesses including services, markets, banking and wealth supporting the outlook for higher returns.
Shares could gain further as the bank provides "more clarity" on its strategy to achieve mid-teens ROTCE at Investor Day, with current valuation not fully reflecting that potential, the analyst added.
Price: $131.47, Change: $+1.89, Percent Change: +1.46%