When it comes to too-big-to-fail financial stocks, there is perhaps none more prominent than Citigroup Inc. (NYSE: C). The banking and consumer credit card giant, the third-largest U.S. bank by assets, shed its bailout blanket last December with the sale of the U.S. government’s final batch of shares. Now that the company is out on its own again, investors are left with the question of whether the stock is worth owning at current levels.

Certainly over the past several months, the answer that that investing advice question has been a definitive “yes.” Citi shares are up about14% over the past three months.  Over the past year, the stock has surged a stunning 39%. That’s a very big turnaround … but still off nearly 90% over the past five years, which was caused primarily by the industry-wide financial meltdown of 2008 from which Citigroup took it squarely on the chin.

So, which way does Citi go from here and is it one of the better or worse stock picks in the financial sector? Here are the pros and cons of the financial giant’s shares.

Pros for Citigroup

Their first profit since 2007. In late-January, Citigroup reported its first annual profit since 2007. The company posted a 2010 profit of $10.6 billion, and the positive results were due largely to lower losses on troubled loans. This is a far cry from just two years ago, when the company reported a loss of $18 billion. It’s also much better than the $1.6 billion loss in 2009.

Restructuring units. Citigroup realizes it needs to do more on the profit front, and as such it is rearranging its U.S. retail banking and credit card businesses. According to reports in The Wall Street Journal, the restructuring includes management changes at the units. The strategy is widely seen as an attempt to improve sales and services in these critical units.

Buy the technical dip. Citi shares enjoyed a big run up from their November lows, but that run ended on January 18 after the company reported fourth-quarter earnings. The chart here of C shows the stock currently trading below its 50-day moving average. At current levels, the stock could be viewed as a “buy-the-dip” play.

Cons for Citigroup

A sizeable earnings miss. That January 18 earnings report did show a full-year profit, but the numbers also showed that Citigroup woefully missed earnings expectations. The company’s Q4 profit of 4 cents per share on $18.37 billion in revenue was far below the consensus estimate for a profit of 8 cents per share on revenue of $20.40 billion.  The disappointing results pushed the stock well below its recent 52-week high.

A victim of tax cuts. Interestingly, Citi has come out and said that it could be forced to write down expected future tax benefits if the United States or Japan decreases corporate tax rates. The company thinks any writedowns linked to the proposed U.S. and Japanese tax changes could be “significant,” the bank said in its annual filing with regulators. The prospect of trouble on the horizon for a company when tax rates go down doesn’t bode well for the fiscal health of any institution, and especially one as big as Citigroup.

Big fines on the way. According to Citi’s recent annual report, the company says it could face as much as $4 billion more in losses from litigation left over from the financial meltdown and other matters than it has already set aside. That is an estimate far higher than rivals Wells Fargo & Co. (NYSE: WFC) and Bank of America Corp. (NYSE: BAC). Banking experts think Citi’s exposure may be greater partly because it still faces lawsuits by stockholders and bondholders related to its disclosures about holding toxic mortgage assets that eventually produced $40 billion in losses.

Verdict on Citi Stock

Despite the company’s first annual profit since the financial meltdown, the recent run in the shares has lost significant momentum. Given the notable earnings miss in Q4, as well as the prospect of bigger than anticipated fines still on the way, I have to vote in favor of the cons for Citigroup shares. Steer clear of this stock for now.

At the time of this writing, Jim Woods had no positions in any of the securities mentioned here.