Citi's Road to Better Earnings 'Could Take 1-2 Years to Ramp Up,' Bernstein Says

On Tuesday, Bernstein Research downgraded shares of Citigroup (NYSE: C) from Market Perform to Outperform and raised the price target from $52 to $57.

Analyst John McDonald's upgrade is based on:

• Heightened confidence in Citi's ability “to improve efficiency and get on a path to 0.90% ROA.”
• Market expectations have been adjusted “to a one-year CCAR delay.”
• Belief that Citi “can address the Fed's stress test concerns during 2014 and begin returning a significant amount of excess capital over the next several years.”

The road to better earnings and return on assets “is likely to be bumpy and capital return could take 1-2 years to ramp up,” but the analyst views the long term risk/reward as “attractive.”

According to McDonald, downside will be “cushioned by growing book value (adding $4-$5 per year) and the current valuation (0.85% of TBV).”

Shares of Citigroup are trading up by 0.60 percent to $47.96 in Tuesday's pre-market trading. The $57 price target represents 18.8 percent upside from current levels.