Citigroup's Transformation Can Lift the Stock by 30%. It's Time to Buy. -- Barrons.com

By Teresa Rivas

From housing to gasoline prices, nearly everything that the 2008-09 financial crisis impacted has bounced back and then some. Then there's Citigroup stock.

Citi is the last of the major banks trading below its pre-crisis peak, and it does so by a substantial margin. The company certainly needed a major overhaul, so investor skepticism was warranted. It has since emerged better and stronger, with ongoing improvements likely to further bolster its stock price. The transformation in progress, along with new management and a favorable backdrop, suggest more upside for the stock. The shares only need to trade around 13 times 2027's expected earnings per share -- roughly in line with peers -- to cross the $165 mark. That corresponds to a gain of about 30% from current prices.

"Citi has been in a multiyear turnaround plan, and [CEO Jane Fraser] has done a terrific job positioning the firm for a more simplified structure, more focused on returns," says Macrae Sykes, a portfolio manager at Gabelli Funds, which owns the shares. "It appears, with the strategy in place, that Citi should continue to build on its improvement in return on tangible common equity."

ROTCE, a "truth metric" for banks, has become increasingly important in recent years, as it strips away intangible assets such as goodwill to help investors get a clearer view of a financial institution's profitability after taxes. Citi's ROTCE has been volatile, and below the 10% investors have tended to expect in recent years. However, consensus calls for it to expand from 7.7% in 2025 to 11.4% this year and 12.2% next year -- levels that demonstrate Citi's continued headway and are typically associated with higher stock prices.

Very simplistically, "you're buying something that could be as good as JPMorgan at half the price," says Dave Ellison, a portfolio manager at Hennessy Funds, which owns the stock.

At ten times next year's expected earnings and priced at just over one times book value and 1.2 times tangible book value, Citi is the cheapest of the handful of major banks. It is expected to grow earnings per share more than 60% this year, to $11.20, and more than 14% in 2027, to $12.79, outpacing most of its peers.

"I call it an ugly-to-OK to good-to-great story," says Ellison. It's "still underearning on assets and equity relative [to other big banks], but the current management is finding its footing and starting to make improvements that are tangible enough."

Citi is the major global payments player, along with JPMorgan Chase, processing trillions of dollars among institutions around the globe. Citi has also begun taking market share in the large-cap corporate mergers-and-acquisitions space.

In a Barron's profile earlier this year, Fraser discussed her determination to keep Citi's turnaround chugging ahead, despite tough decisions about the organization's structure, its talent pool, and the need for further cost-cutting. ("I'm Scottish and cheap," she said.) The shares are flat since then, and have gained more than 7% year to date, even as the State Street Financial Select Sector SPDR exchange-traded fund is in the red since the start of 2026. That reflects Wall Street's increasing confidence in the company's ability to be disciplined about its costs, shed less-profitable segments of its business, and use its capital in smarter ways.

Even with that outperformance under its belt, Citi's momentum could continue as "there's more work to be done," as Sykes puts it, including the divestiture of its operations in Mexico and other legacy assets.

Of course, skeptics may worry that the stock already reflects much of the good news, with further success harder won from here. Citigroup still faces strict regulatory scrutiny given its past troubles. And while any financial institution is going to be sensitive to the broader economic backdrop, Citi's personal-banking division and its co-branded credit cards means it is exposed to the consumer -- an area that many investors are worried about right now.

Those are valid concerns, but they don't tell the whole story. Consumers have remained remarkably resilient in the face of persistent inflation, as recent retail sales readings show, supported by a relatively stable labor market. Regulations could actually be a tailwind, with Citi likely to announce lower capital targets on the heels of the Basel III Endgame's revised, less onerous requirements, says Morgan Stanley analyst Manan Gosalia. Citi's ROTCE can climb as high as 15% by 2030 by his math, and he expects shares to trade to $164, more than 25% above Wednesday's close of $127.32.

Ultimately, Citi's self-help measures can keep prodding the shares higher, at a time when there aren't many similar comebacks in the sector. "There are probably only three or four ugly-to-OK stories trying to get to good-to-great," says Ellison. "Citi is one of them, and the rest are very small companies that have had credit issues....I'm betting that it's going to continue to get better."

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This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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October 08, 2026 08:41 ET (12:41 GMT)