Here is our free report on Citi.
See my recent post Mayo Is Right about Citi for details on our analysis of the company’s loose Deferred Tax accounting and other Red Flags. There are other reasons (besides questionable accounting for deferred tax assets) to run from this stock.
- Over $7bn in off-balance sheet debt
- $2.2bn in under-funded Pension liabilities
- Over $10bn in Asset write-offs
- Very Dangerous valuation (detail follow)
Our discounted cash flows analysis reveals another RED FLAG — a Very Dangerous Valuation. At $3.67, Citi’s stock price implies the company will grow its NOPAT (Net Operating Profits After Tax) by over 15% per year for each of the next 25 years. In other words, to justify the current valuation of its stock, Citi has to grow its NOPAT by 15% com pounded annually for 25 years. As explained in How to make money picking stocks, Citi’s performance must meaning fully exceed the current expectations of a 15% CAGR for NOPAT over 25 years in order for (long) investors to make money in the stock.
See Appendix 4 to learn how we calculate NOPAT and NOPAT Margin. See Appendix 5 for details on how JDSU’s Invested Capital is bloated due to the asset write-offs and the large deferred tax asset. Appendix 7 (in the Return on Invested Capital sec tion) shows how a rising NOPAT Margin and rising Invested Capital Turns result in a jump in ROIC (to .6%) and negative Economic Profit of -$41.2bn while Net Income is negative $9.2bn — during the last fiscal year.