Bear Stearns Cos., a hold-out on Wall Street amid last summers frenzy of consolidation, could find its solo act hurting its stock price.
On Friday, Guy Moszkowski of Salomon Smith Barney downgraded the company to outperform, from buy, and cut his target price to $65 a share, from $70. He also reduced his earnings outlook for this year to $6.12 per share, from $6.57. Mr. Moszkowski had rated Bear Stearns a buy since initiating converge of the company last April. This rating reflected the stocks upside potential thanks to takeover speculation on Wall Street, he said.
The stock rose considerably after James Cayne, chief executive officer of Bear Stearns, mentioned last July that he would consider selling the company. Mr. Cayne set the price at a hefty four times book value, and the stock traded as high as $72.125 a share Sept. 12 but fell back after the dust settled and reached a low of $45.25 on Dec. 15. On Friday, Bear Stearns was down $1.32, or 2.21%, to $58.40.
Right now the stock is overvalued when compared with companies like Merrill Lynch & Co. or Goldman Sachs Group, Mr. Moszkowski wrote in a research note Friday.
Revenue and earnings growth at Bear Stearns, as well as return on equity, are still at the low end of the group norm, and the company has lost market share in the U.S. investment banking business, he said.
On Jan. 4, Bear Stearns reported earnings of $1.36 per share in the quarter ended Nov. 30, up from $1.32 the year earlier, but net income was down 6%, to $195.2 million.
Mr. Moszkowski is not alone in his outlook on the New York brokerage house.
Joan S. Solotar, an equity analyst at Credit Suisse First Boston, said that Bear Stearns has lost some ground to some of its bulge-bracket competitors like Merrill Lynch and Goldman Sachs that have global reach in their favor. More and more merger and acquisition deals are cross-border arrangements, and a domestic company with no international exposure loses out to those that have expertise in other parts of the world, she said.
Ms. Solotar has had Bear Stearns on hold since she reinitiated coverage of the broker/dealer after moving from Donaldson, Lufkin & Jenrette, which itself became part of the merger boom when it was acquired by Credit Suisse Groups CSFB unit in October.
Indeed, Ms. Solotar has not changed her rating since 1994. She said she looks at companies strictly on a fundamental basis and does not change her rating due to takeover potential.
There could be at least one bright spot for Bear Stearns. Given a friendlier outlook for fixed-income, Bear Stearns could do relatively well in 2001, she said, noting that the companys strong bond underwriting and trading unit could supply some earnings momentum. Ms. Solotar said she expects Bear Stearns to earn $6.55 per share; her target price is $60.
Elsewhere, shares of the troubled Finova Group Inc. rose as high as $1.44 but fell back to $1.24 by the close, up 4 cents, or 3.33%, after an article in Fridays Wall Street Journal said that Goldman Sachs and General Electric are about to take a stake in the debt-ridden banking company.
Finova, based in Scottsdale, Ariz., is at the edge of bankruptcy, with about $2 billion of dept repayments coming due. Its assets stand at $13 billion.