Goldman Sachs Group Inc. told clients to bet on shares in Citigroup Inc. before fourth-quarter earnings later this month as new Chief Executive Officer Michael Corbat cuts costs and withdraws from some markets.
Investors should buy call options on shares in Citigroup before the bank announces its earnings results Jan. 17, Goldman Sachs said in a note to clients. Calls are contracts that provide the right to buy shares at a certain price. The New York-based firm added Citigroup to its “conviction buy list” and said shares could rise to $49 within a year.
Corbat, who replaced Vikram Pandit in October, is laying off thousands of workers and pulling out of some countries as he seeks to reduce costs at Citigroup. His cost-cutting plans, announced last month, make the New York-based bank the “best large-cap restructuring story,” Goldman Sachs analysts led by Richard Ramsden said in another note.
“Under new CEO Michael Corbat, we believe Citi is poised to improve returns and increase efficiency,” the analysts wrote. “Citi shares are mispriced given the company’s core earnings power, especially considering further restructuring could generate additional upside for shares.”
Citigroup gained 1.6 percent to $42.04 at 10:01 a.m. in New York, the third-best performer in the 24-company KBW Bank Index. The shares have increased 6 percent this year.
Shannon Bell, a Citigroup spokeswoman, declined to comment on the Goldman Sachs recommendation.
Corbat announced plans last month to cut about 11,000 jobs and pull back from markets including Pakistan, Paraguay and Turkey. The lender will take a $1 billion charge to cover the workforce reduction.
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