Shares of Cleveland's National City Corp. are the latest to be singled out by investors as a banking stock with running room for price gains.
After lagging behind other bank stocks this spring, National City sprinted 6.5% in the past week despite a stock market slump. It climbed 37.5 cents, to $45.125, Wednesday afternoon while the Dow fell about 41.73 points.
"They were due for a move," said Frank J. Barkocy of Advest Inc., who on Tuesday recommended the stock to the firm's institutional sales staff as "the best current value among our recommended regional banks with strong catch-up potential."
The midwestern superregional also got a boost last week from Salomon Brothers Inc., which resumed coverage of its shares with a strong buy recommendation.
Salomon bank analyst Diane B. Glossman cited National Ciyy's "modest price" as well as its strong management and "bright outlook for improved credit quality and productivity."
The stock, then at $43.625, was selling at only 11.2 times Ms. Glossman's 1992 earnings estimate of $3.90 a share and 9.3 times her 1993 estimate of $4.70. On Wednesday afternoon, it traded at 11.6 times her estimate.
In contrast, Ms. Glossman said, Salomon's superregional bank composite sells at 11.9 times this year's expected earnings and 10.2 times next year's anticipated results.
Previous Lack of Interest
National City's shift in dividend policy may previously have dampened the stock. Traditionally a bank with a relatively high payout ratio, the company has said it may allow the ratio, now over 50%, to decline to 35% of normalized earnings to help bolster capital.
Investor interest in National City actually began growing June 4. That day the company's management said during a presentation sponsored by Alex. Brown & Sons Inc., Baltimore, that it was "comfortable" with earnings estimates ranging from $3.90 to $4.25 per share this year.
Mr. Barkocy said this was taken to mean the company was comfortable with the higher end of the estimate range. His own forecast for the company this year is $4.25 per share, which he increased in April from $4.10.
Merger Deal Completed
The stock has also likely been moving in the aftermath of National City's acquisition Merchants National Corp., Indianapolis, which was completed in early May. That move boosted its assets to $29 billion and put it among the nation's 25 largest banks.
"The stock was probably on the wait-and-see list until the Merchants deal was done," said Mr. Barkocy. "But now I expect the company to operate in a near-term digestive mode," with no further deals on the horizon.
Investors apparently have not placed much weight on rumors that National City might be a second bidder for Star Banc Corp., Cincinnati, which is being pursued by its city rival, Fifth Third Bancorp.
Ms. Glossman noted that after the Merchants transaction National City ranks first overall in its Ohio-Indiana-Kentucky region, with a 9% deposit share. But in its hometown of Cleveland it has slipped to second place since Society Corp. acquired Ameritrust Corp.
National City reported first-quarter operating earnings per share of $1.06, up 25% over 85 cents a year ago, with securities gains of $8 million versus $5 million a year earlier. Nonperforming assets dropped 10% during the quarter and represented 1.57% of total assets versus 2.81% for all superregionals tracked by Salomon.