Citigroup (NYSE:C) — recently revealed that hackers broke into its computers and accessed confidential information of 200,000 credit card customers. While this is certainly bad news, should it keep you from buying Citigroup’s stock?
Citigroup found out that these customer accounts had been hacked in May but just started letting customers know about it this month. The New York Times reports that the information on each cardholder ought not to inconvenience those cardholders much — although the thieves got customer names, card numbers, addresses, and e-mail details they did not steal customers’ Social Security numbers, expiration dates, or the three-digit code on the card’s back.
Although this news is unpleasant, Citigroup, its customers, and its shareholders can take comfort in knowing it’s not alone when it comes to being a target of hacking. The Identity Theft Resource Center reports that since 2005, financial services companies have publicly disclosed 288 publicly breaches that exposed no fewer than 83 million customer records.
Not only that, but the cost of fraud has dropped dramatically in the last 19 years. In 1992, Nilson Reports said banks lost 15 cents to fraud for every $100 charged. Since 2005, that figure is down 66% to 5 cents for every $100. While credit card companies set up security standards in 2005, “compliance with those rules has been mixed,” according to the Times.
For Citigroup, it’s unclear how many of its credit card customers will bolt to another issuer since there does not appear to be an obvious provider that is 100% impervious to hackers.
Meanwhile, the bank, which completed a 10-for-1 reverse stock split on May 6, reported slightly better-than-expected first-quarter results. Its $3 billion net income was down 32% from the year before, but its per-share profit of 10 cents beat estimates by a penny.
The report contained a mixture of good and bad news. The good news was that this was Citigroup’s fifth profitable quarter in a row, and its losses from bad loans narrowed by 25% as fewer customers missed payments. The bad news was that profit in its trading and investment-banking businesses tumbled almost 50% and revenue was down in all but one of its six business units.
Does Citigroup’s latest profit report suggest it’s time to buy its stock? To think about that, we can look at their price-to-earnings-to-growth (PEG) ratio — a way to determine whether the value that the market assigns a stock is justified by the rate at which it expects the company’s earnings to grow. I think a PEG of 1.0 is a fair price, and anything below that is a bargain.
At a PEG of 0.45, Citigroup looks cheap. Citigroup’s P/E is 12.2 and its earnings are forecast to grow to $5.37 a share in 2012. If Citigroup can keep beating analysts’ expectations, its stock price has a chance to rise from its current low level.
Peter Cohan owns Citigroup shares.
