Citigroup has been looking sloppy for most of 2011, and downright ugly for the past month. Citi shares have declined 14% since the company’s reverse stock split on May 9, compared to a 2% drop for the S&P 500.
Despite the severe funk in which the stock currently find itself, UBS analyst William Tanona forecasts Citi to gain nearly 50% in the next 12 months, coming out today with a bullish research note that features an eye-popping price target of $56 per share. In analyzing six comparable reverse stock splits over the past eleven years, it was found that stocks tend to underperform the market immediately following the split and Citigroup has been no exception.
Since early 2010, trading in Citi shares became dominated by retail investors, and we estimate it hit as high as two-thirds of total volumes in early 2011. However, since the reverse split, total retail volumes have dropped dramatically, with retail trading over the last few weeks representing about 15% of total volumes, which we would view as a more normalized level.
Now that average Joes have kicked their Citi addiction, Tanona sees valuation of the company driven more by fundamentals favored by institutional investors, like insurance companies and big pension funds.