Is Citigroup's Turnaround Story Still Worth Betting On?

The question of whether Citigroup remains a compelling investment hinges on two critical pillars: its valuation relative to peers and its capacity to sustain the structural improvements that have driven recent gains. As the global financial landscape continues to grapple with inflationary pressures and shifting regulatory expectations, Citigroup's Q3 2025 results offer a compelling case for optimism, albeit with caveats.

A Valuation at a Discount, but Not Without Risks

Citigroup's forward price-to-earnings (P/E) ratio of 10.41X as of late 2025 is notably below the industry average of 14.38X, suggesting the market may be undervaluing its earnings potential. This discount is even more pronounced in its price-to-book (P/B) ratio of 0.85, which, while higher than its 3-year average of 0.67, remains significantly lower than peers such as JPMorgan Chase (2.39) and Bank of America (1.29) according to financial data. For a bank, where tangible assets form the backbone of value, this implies Citigroup is trading at a substantial discount to its book value-a metric that historically has been a barometer of market sentiment toward asset quality.

However, this undervaluation is not without justification. Citigroup's P/B ratio has fluctuated widely over the past decade, peaking at 1.13 in 2007 and hitting a trough of 0.39 in 2012. The current level, while improved, still reflects lingering skepticism about its ability to consistently outperform in a sector where margins are increasingly squeezed by macroeconomic volatility.

Structural Improvements: Efficiency, AI, and Strategic Refocus

The recent earnings beat-Citigroup's adjusted EPS of $2.24 in Q3 2025, exceeding forecasts by 28%-is not an isolated event but a reflection of deeper operational reforms. The bank's Return on Tangible Common Equity (ROTC) of 9.7% (adjusted) underscores its progress in enhancing profitability, with management targeting a ROTC of 10-11% by 2026 and an efficiency ratio below 60%. These metrics suggest a disciplined approach to cost management and capital allocation, critical for long-term resilience.

Strategically, Citigroup has made significant strides in embedding artificial intelligence into its operations, a move that promises to reduce costs and elevate client experience. Its wealth management division, in particular, has shown robust growth, with investment assets rising 14% and record net inflows of $18.6 billion in Q3 2025. Such progress in high-margin segments is vital for a bank seeking to diversify beyond its traditional corporate and investment banking roots.

The divestiture of a 25% stake in Banamex, its Mexican subsidiary, further illustrates a strategic refocus on core markets and capital return. Share repurchases of $5 billion in Q3 2025 highlight a commitment to rewarding shareholders, a move that has contributed to a 42.6% year-to-date gain in its stock price.

Analyst Optimism and the Path Forward

Analysts have taken notice. Five analysts revised their earnings estimates upward following the Q3 results, and Jane Fraser, Citigroup's CEO, has emphasized the cumulative impact of strategic changes over the past years. The stock's 3.89% post-earnings rally to $96.1 reflects growing confidence, though it remains to be seen whether this momentum can be sustained.

The key risks lie in macroeconomic headwinds and the pace of AI integration. While the bank's efficiency ratio is improving, achieving a sub-60% target by 2026 will require continued cost discipline in a sector where labor and technology expenses are rising. Additionally, the P/B ratio's sensitivity to asset quality means any missteps in credit risk management could quickly erode investor trust.

Conclusion: A Calculated Bet

Citigroup's turnaround story remains compelling for investors willing to tolerate near-term volatility. Its undervaluation, relative to both historical trends and peers, offers a margin of safety, while its strategic initiatives-particularly in AI and wealth management-position it to capitalize on long-term trends. However, the path to sustained profitability is not without obstacles. For those who believe in the power of structural reform and the bank's ability to execute its vision, Citigroup's current valuation appears to offer an attractive entry point.

The ultimate verdict, though, will depend on whether the market's skepticism proves misplaced-and whether Citigroup can maintain its momentum in an environment where the margin for error is narrowing.