The U.S. Treasury has exited its stake in Citigroup Inc. (NYSE: C).  Normally you would expect shares to drop when you see 2.4 billion shares sold out or so, but that is not the case here.  Citi can now govern itself without the obligation of owing the taxpayer an explanation of every step along the way.  Earlier this year, we named Citi as one of six stocks that could double over the next year.  That call still stands.

The real issue here is that there are two Citigroups.  The current Citi is still in the process of becoming the core-Citi.  Vikram Pandit has been selling units where possible and we expect more sales in the coming year.  Some units may actually end up being spun-off to shareholders and that is a strategy that Citi should honestly consider.  There is a risk in that break-ups and spin-offs have a mixed history.  Still, finding a buyer for every single asset out there is not always the easiest task.

Citi entered a pact with Morgan Stanley (NYSE: MS) for Morgan Stanley Smith Barney.  Its list of brands is still far too large: Citi, Citibank, Citi Financial, Citi Mortgage, Citi Capital Advisors, Citi Cards, Citi Private Bank, Citi Institutional Clients Group, Citi Investment Research, Citi Microfinance, Banamex, Women & Co. and on.  The company is structured as Citicorp and Citi Holdings.  Of the moves seen to date, the reality is that most of the moves may have been seen.  There are still ways to segregate units to get to more 3of a focus rather than the full financial super-market business model that failed to work as Citi had hoped.

As we noted earlier in the original call for Citi as a double, “The good news is that Vikram Pandit has been executing selective sales and spin-offs. Dick Bove of Rochdale at one point in 2010 raised his rating to “Buy” from “Hold” and gave a long-term target of $8.50 on the stock.  With a close of $3.73 on this Tuesday, the 52-week range is $2.55 to $5.43.  A price of $7.50 is under the old Bove target and getting to much higher share prices may only be possible after non-core spin-offs and asset sales actually generate a much lower market cap down the road for what is left of a core-Citi.

The call for Citi to double is of course a double from the original point.  Shares were at $3.73 and the double would take shares to $7.50 or close enough.  Citi shares are up 2.8% at $4.58 on literally 1 billion shares after 30 minutes of trading.

Getting a double in Citi is no easy task, even from that $3.73 point.  This is a long road ahead.  Execution will potentially matter even more than market conditions at a given point.

Thomson Reuters has estimates for 2010 and 2011 as being $0.39 EPS and $0.46 EPS.  For next year, Citi is already at almost 10-times earnings.  For a turnaround that is an acceptable level.  For a multiple much higher than 10-times earnings, Citi has to execute and convince Wall Street AND Main Street that more good things are coming down the pipe.  It is hard for turnaround stocks to also be value stocks, but sometimes that is the case.  We’d consider this a special situation rather than a true value call.

This price of $4.58 today compares to a 52-week trading range of $3.11 to $5.05.  In the call for a double, shares have already moved about 23% higher.

JON C. OGG

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