Firstar Corp. received increased attention from Wall Street on Monday when Alex. Brown & Sons Inc. initiated coverage of the Milwaukee banking company's shares with a "neutral" rating.
Mark Alpert, a banking analyst, lauded Firstar's "hefty profitability and powerful balance sheet." But he said its stock is more expensive than others right now on price-to-book basis.
It was the second kudos in a week for Firstar from the investment community. Earlier, analyst Michael A. Plodwick of C.J. Lawrence/Deutsche Bank Securities Corp. reiterated a "buy" rating, saying he believed a rally in the shares is imminent.
In late-afternoon trading, Firstar shares were unchanged at $31.25.
Prospects for Growth
At a time when revenue prospects for banks are under suspicion by skeptical investors, Mr. Alpert said Firstar enjoys strong growth on both the lending and nonlending sides of its operations.
Its loan portfolio is growing because of the "relative health of Firstar's Upper Midwest service territory and the company's excellent penetration of its marketplace," he said.
He anticipates that average loans outstanding for Firstar will increase by 9% this year and about the same next year. In comparison, industrywide lending growth at banks this year is likely to be a meager 2%.
Besides loans, "strong fee income is an important weapon in the company's profit arsenal," the analyst said. "Firstar is very strong for its size in trust activities, and the bank also produces plenty of noninterest income in other parts of its business."
Fee Income Rising
Mr. Plodwick said Firstar's fee income in the third quarter grew 14% from the same period last year and has continued to be strong during the fourth quarter.
"This level of revenue growth is outstanding in an environment where most companies are concerned about top-line growth," he said.
Mr. Alpert said he expected a 20% increase in earnings per share in 1993 to an estimated $3.15, and another 8% advance in 1994, to $3.40.
"The slower expansion next year reflects the fact that the loan portfolio is now about as clean as it can be, and, given the likely continued growth in loans, that loss provisions probably will start to rise again," he said.
Stock Seen as Bargain
Mr. Plodwick said the Firstar's stock price is "unusually low for a company whose balance sheet and profitability set the standard for regional banks."
Even in a environment of moderately rising interest rates, he said, Firstar could sell at 2.5 times his projected yearend 1994 book value of $20.33 for a yearend 1994 price target of $51 a share, he said.
"This implies upside potential of 70% from current levels," Mr. Plodwick said, making Firstar "one of the most compelling ideas" in bank stocks.
More gingerly, Mr. Alpert said Firstar shares seem "modestly undervalued" at a 9.2 times his estimated 1994 earnings estimate of $3.40 a share. Other banks have an average 9.6 multiple.
But he said he viewed the stock as at the upper range in terms of price to book value, selling, at 179%, compared with 157% for other banks.