Norwest Bucks Market Trend As Chief Predicts Profit Rise
While other bank stocks edged down Friday, Norwest Corp. eked out a small gain, possibly on the strength of chairman Lloyd Johnson's prediction that per-share earnings would keep rising about 10% a year.
Analysts said the prediction from Mr. Johnson, who is also chief executive, was modest, given the company's strengths. Nevertheless, Sandra Flannagan of Alex. Brown & Sons Inc. said the comment might have jogged the memories of investors who may have overlooked Norwest in their search for solid banks.
Meanwhile, a Norwest spokesman said 10% earnings growth is one of the company's main objectives and Mr. Johnson's statement shouldn't be news to investors.
Analysts Like Its Chances
Analysts said they thought the company has an excellent chance to meet its objectives. Its share price gained 37 cents, to $31.87, by early afternoon, while most bank stocks declined.
"In terms of the bottom line, I can't argue with it too much," said Christoph Kotowski, analyst at Oppenheimer & Co., referring to the 10% growth projection. But he did raise questions about what he called "the quality of the earnings."
Part of Norwest's earnings derive from tax benefits gained in the acquisition of United Banks of Colorado, Mr. Kotowski explained. Norwest is paying an effective tax rate of 18.5%, but that level will rise as benefits related to past losses of the Colorado unit run out, he said.
Tax Benefit's Impact
Without the reduced tax rate, the company would have reported earnings for the recent quarter of about 58 cents per share, not 73 cents, he estimated.
Mr. Kotowski also said Norwest's banking operation by itself earns a modest return on assets of about 80 basis points. That is lifted to more than 1% for the company as a whole, however, by strong earnings of a finance subsidiary.
Francis X. Suozzo, analyst for S.G Warburg, said he, too, has expressed doubt about the quality of Norwest's earnings because the company always seemed to be using reserves or tax benefits to bolster results.
But he said Norwest has improved operating income of acquired companies by the time the unusual items were spent.