The decision North Fork Bancorp announced Thursday to let its proposed acquisition of Dime Bancorp expire earned the Melville, N.Y., bank an upgrade from Donaldson, Lufkin & Jenrette Inc.
Reacting directly to North Forks decision to drop its hostile bid, analyst Rosalinde V. Looby lifted her rating for the company to buy from market perform and raised her per-share earnings estimates for this year 2 cents, to $1.77, and her estimate for next year 5 cents, to $2. Marni Pont ODoherty of Keefe, Bruyette & Woods Inc. and Jeffrey Miller at Pennsylvania Merchant Group reiterated their buy ratings.
We view the removal of the cloud of uncertainty that has hung over NFBs stock all summer as positive, Ms. Pont ODoherty stated in her research note. However, she wrote that she was less sure about North Forks plan to repurchase 10% of its shares, which it had affirmed with the announcement about Dime. She left her earnings outlook for next year unchanged at $1.95.
North Fork was up 43.75 cents, or 2.06% and closed on Friday at $21.625.
Meanwhile, Andrew Collins, an analyst at ING Barings LLC, initiated coverage for Citigroup Inc. with a strong buy and a target price of $100. Citi rose 62.5 cents Friday, or 1.29% to close at $54.0625.
Mr. Collins said his favorable rating and his target price of 32 times his expected per-share earnings for this year were influenced by the companys consistent earnings growth. In his research report, he wrote that Citi deserves a significant P/E multiple premium to current levels and its peer group.
He wrote that the appropriate peers for Citi are world-class financial service organizations such as American Express Co., General Electric Co., and American International Group, which are currently trading at 25.1 times, 39.3 times, and 34.7 times their earnings consensus for this year, respectively.
Citigroup currently trades at 17.2 times its expected earnings for next year. Mr. Collins attributed this to macro-economic trends and concerns about Associates First Capital, which Citi announced it would acquire on September 6.
Citis stock, which has fallen 10% since an all-time high of $58.875 on Aug. 28, is a significant buying opportunity, he said.
Consumer concerns about the deal for Associates is more a public relations risk than a concern for investors, and if any political pressure arising from the proposed acquisition would lower the valuation of Citis shares, the stock would present an even better buying opportunity, Mr. Collins said.
The consistency of earnings is important, he said, because investors buy on consistency.
Elsewhere in the market, rumors about a possible takeover of Bear Stearns Cos. surfaced again and pushed the stock up $6.8125, or 11.98%, to $63.50.
Speculation about firms that might be interested in buying the investment firm included Bank of America and Bank of New York, but analysts said the buyer most likely would come from abroad. Two Dutch names, ING Barings and ABN Amro, were mentioned, as well as HSBC from the United Kingdom.
Bank of Americas stock fell by $1.625, or 3.01%, to $52.375. Bank of New Yorks shares dropped 81.25 cents, or 1.42%, to $56.50.
Steven Eisman of CIBC World Markets said he believes that Bear Stearns will stay independent. Bear Stearns has such a unique culture, and that would make it difficult for any acquirer to integrate it, he said.