Citigroup (NYSE:C) is having a fairly uneventful 2018 so far, at least as far as its stock goes. Since February, Citigroup stock has traded in a tight range between $65 and $75 per share.

But that quiet period should lead to a bigger move once CITI stock leaves that trading range. And, as we’ll see, there are reasons to believe that Citigroup’s next move will be to the upside. I believe that Citigroup stock can reach at least $80 in the coming months.

The Depressed Valuation of Citigroup Stock

Since the 2016 presidential election, financial stocks have been among the market’s strongest performers. It was widely expected that Trump’s policies would lead to elevated inflation and higher  interest rates. And thus far, that general trend is playing out. The Fed is steadily hiking interest rates while inflation has picked up, and the labor market is the strongest that it has been since the financial crisis.

All of those developments should be positive for big banks, and not surprisingly, investors have flocked to the sector. But Citigroup stock is the black sheep of the big American banking franchises at this point. As our Dana Blankenhorn noted earlier this summer, Citibank was the only major U.S. bank whose shares were still trading below its book value. Traditionally, book value is the floor of a bank’s valuation. Unless a bank gets into serious trouble, it usually trades above its book value.

After the financial crisis, that rule went out the window. Various big banks traded under their book values for an extended period of time, even as the worst passed and the housing market started to recover. However, over the past two years virtually all significant U.S. banks have traded well above their book values again.

Except for Citigroup, that is. At present, Citi’s book value is $72 per share, while Citigroup stock is trading around $70, leaving CITI stock just below its book value. What explains the bargain-basement valuation of CITI stock?

Can We Trust Citigroup?

In a word, as Blankenhorn put it, the problem is scandal. He pointed out six different recent alleged scandals involving Citigroup, including rigging the exchange rate in South Africa, charging its customers too much interest, and misleading potential recipients of student loans.

It’s not unusual to occasionally see negative headlines about banks. But a consistent pattern of troublesome allegations is something else. That said, there are two other major banks that have been magnets for bad press lately: Wells Fargo (NYSE:WFC) and Toronto-Dominion Bank (NYSE:TD). Their stocks trade at 1.5 times book value and 2.0 times book value, respectively. CITI stock, it’s worth remembering, is trading just under 1.0 times the bank’s book value.

Thus, the market is willing to forgive some wrongdoing by banks if their businesses are operating well overall. However, judging from the price of Citigroup stock today, investors are not willing to give Citigroup the benefit of the doubt.

Citi’s Business Is Performing Well

While Citigroup’s public relations could improve, the bank’s underlying business is humming along. Its recent quarterly earnings have been impressive.

And earlier this month, Citigroup CFO John Gerspach added more good news. His updated outlook for the bank’s business featured sharply improved metrics. Specifically, the company now expects its return on tangible equity to rise to 13.5% in the near future and 16% over the longer term. That’s way up from the 11% that Citigroup has been averaging, and it’s significantly above the median level of Citi’s peers.

On top of that, Citigroup is containing its costs. In fact, its cost-cutting program is ahead of expectations; Citi increased its total cost savings estimate to $2.8 billion by 2020 from $2.5 billion previously. Despite the flat price of CITI stock and the still-challenging environment for net interest margins, Citigroup is delivering on its business transformation plan.

Emerging Market Risk

So if Citi’s business is performing well, why isn’t Citigroup stock worth more? Arguably, the big issue now, in addition to the bank’s scandals, involves its exposure to emerging markets.

Citigroup has bigger businesses in Latin America and Asia than most U.S. banks. In the past, that has made Citigroup much more volatile than other, more domestic-focused banks, as emerging markets have a tendency to enjoy huge booms and suffer major busts. Citigroup in particular has gotten in trouble more than once when it lent too heavily to entities in these emerging markets.

Citi has been paring back this exposure, however, as it has been selling off assets in certain countries such as Colombia in recent years. But Citi still has a large presence in other emerging countries such as Mexico and Argentina,  so Citigroup stock will still be affected by the ebb and flow of emerging markets. At this time, given the run on the financial system in Argentina and the uncertainty of Brazil’s election, Latin America-exposed stocks have been slumping. To the extent that investors are selling Citigroup stock due to its exposure to Latin America, expect a healthy bounce for CITI stock once that headwind lets up. As nasty as the headlines out of developing countries are, this is not another horrific emerging market crisis like the one that occurred in 1997-1998.

The Verdict on Citigroup Stock

CITI stock has been less safe than the shares of other major banks in the past. But a decade removed from the financial crisis, it might be time to forgive the company and give it a second chance. Citi has pared back its exposure to riskier assets, kept its balance sheet solid, and has carried out an aggressive share buyback program as Citigroup stock trades under book value. Those are all positive developments.

The rest of Citigroup’s peer group, i.e. the other too-big-to-fail banks, are generally trading at or above 1.4 times book value. If Citigroup was trading at a similar level, CITI stock would be worth $100. Meanwhile, CITI stock is trading at just 11 times the bank’s trailing earnings and 9.5 times its forward earnings. Finally, with its rising dividend and sizable stock buyback initiatives, Citigroup is paying shareholders well to wait for its valuation to catch up with that of its peers.

At the time of this writing, Ian Bezek held no positions in any of the aforementioned securities.