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Is the AMP Limited (ASX:AMP) share price a “buy” as it crashes to fresh record lows?

The AMP Limited (ASX: AMP) share price has tumbled 2.8% to a record low of $2.43 after the stock suffered its biggest one-day crash yesterday.

The meltdown in Australia’s largest listed wealth manager is prompting some to ask if this might be the time to be snapping up a blue-chip bargain.

I use the term “blue-chip” lightly here as the stock has turned decidedly red.

That big crash has prompted some experts to think that Thursday’s sell-off is unjustified even as management announced two divestments and reported fund outflows as clients pulled out stumps in disgust following the Hayne Royal Commission.

One expert that believes AMP is a bargain hunter’s delight is Citigroup. The broker has upgraded its recommendation on the stock to “buy” from “neutral” although it warns that only those with an iron stomach for risk should be fishing for the stock.

The recommendation upgrade comes even as Citi cuts AMP’s FY19 earnings per share (EPS) forecast by 18% and FY20 EPS by a whopping 30% as the group looks to sell its insurance arm and float its New Zealand wealth protection business via an initial public offer (IPO) (click here to read more about the divestments).

But the cash freed up from the restructure can go a long way, and that’s the primary reason that Citi believes AMP is worth the punt.

“With a capital return not specifically committed to by AMP, we do not at this stage factor in any buybacks, but we note the release should be significant with likely at least ~A$1bn capital (potentially more) free or in a relatively liquid form,” said the broker.

“If AMP were to return the A$1bn in cash proceeds via a share buyback at the current share price, we estimate this would add ~10% to FY20E EPS, and imply the stock trades at 9.6x FY20E EPS.”

That’s a relatively low multiple even though some would argue that what’s left in the group (being the bank, wealth management and fund management) should be trading at a discount to the market given that these divisions look to have gone ex-growth in the post-Royal Commission world.

But what little growth upside there may be over the medium-term could be made up from cost-cutting – and there’s a lot of fat management can suck out of the business with Citi estimating a corporate cost of $113 million in FY20, which represents 17% of operating earnings. This is ripe ground for the new chief executive to find savings.

Foolish Takeaway

AMP isn’t the only stock to suffer a painful de-rating from the Royal Commission. Commonwealth Bank of Australia’s (ASX: CBA) share price has also taken a big beating along with other big banks like Australia and New Zealand Banking Group (ASX: ANZ), National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

I do see the valuation argument for AMP but I can’t bring myself to buy it just yet as I would prefer to see more water go under that bridge before jumping in.

There’re other more attractive blue-chip stocks to target in this volatile market and those looking for opportunity will want to read the report below from the experts at the Motley Fool.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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