Bernstein says buy Citi as stock looks cheap

(Reuters) – The recent drop in the share price of Citigroup Inc provides an attractive entry point for investors, brokerage Sanford C. Bernstein said and upgraded the stock by a notch to “outperform.”

Shares of Citigroup have fallen about 6 percent this year, compared with a 6 percent rise in the broader S&P 500 index.

The brokerage said concerns such as soft fixed income currencies and commodities trading revenues and high expenses would continue in the near term but faster earnings growth could set in from 2012.

“We expect improving credit quality and excess reserves to drive meaningful growth in tangible book value over the next two years, and look for capital return to accelerate EPS growth beginning in 2012,” analyst John McDonald wrote in a note for clients.

Given Citigroup’s current reserves, capital ratios, outlook for improving credit, and valuation, the brokerage does not see the bank’s tangible book value going much lower than current levels.

“The stock looks cheap, with an undemanding valuation thesis,” McDonald wrote.

The analyst, however, said continued leakage in net interest income would challenge the pre-provision earnings run rate in the first quarter for the lender.

The stock was trading up a percent at $4.46 before the bell.

(Reporting by Sweta Singh in Bangalore; Editing by Saumyadeb Chakrabarty)

Bernstein says buy Citi as stock looks cheap