CIT Group Inc. has been mostly well received on Wall Street since the troubled industrial conglomerate Tyco International Ltd. spun it off July 2 in an initial public offering a year after buying the specialty finance company.
Shares of CIT have fallen 0.52% since the offering, which was led by Goldman, Sachs & Co. and Lehman Brothers, but analysts seem generally optimistic that the stock has some upside.
On Tuesday, Michael J. Freudenstein of J.P. Morgan Securities Inc. and Moshe A. Orenbuch of Credit Suisse First Boston both initiated coverage of the $49 billion-asset company with "buy" ratings. On Monday, Robert G. Hottensen put CIT on Goldman's "recommended list," its top rating, and gave it a 12-month target price of $30.
Shares of the Livingston, N.J., company rose 2.14% on Tuesday, to $22.88, while those of other specialty lenders fell. The American Banker index of 225 banks fell 2.14% and the Standard & Poor's 500 index fell 2.47%.
Specialty finance companies have recently drawn lots of interest. Investors have been calmed by delinquency rates that have remained at manageable levels and by analysts' predictions that credit quality will not get worse this year.
CIT is trading at a discount to the group. Investors benefited from the "fire sale" at Bermuda-based Tyco, said David S. Hochstim of Bear, Stearns & Co, who has given CIT a "buy" rating. He predicted earnings growth rates in the "high single digits" - to $3.20 this year and $3.50 in 2003.
But not everyone has been applauding the stock. Morgan Stanley's Kenneth A. Posner said in a July 2 report that CIT is at a disadvantage because pays more for funds than companies with access to deposits. Unlike other specialty finance companies, CIT depends entirely on the capital markets to fund its balance sheet.
"For CIT to compete effectively in the commercial finance market, its senior debt spreads must narrow," Mr. Posner wrote. He rated CIT's shares "underweight" and issued a target price of $23.
As Tyco lost investor confidence, Fitch and Standard & Poor's downgraded CIT's debt. But the day of the IPO both rating agencies upgraded CIT - Fitch to A from BBB, S&P to A/A-1 from B-plus/A-2. Both saw a "stable" outlook.
S&P said it acted mostly in response to the severing of ties to Tyco.
Fitch noted that CIT, though it had emerged stronger after its brief ownership by Tyco, remained "modestly undercapitalized." Phillip S. Walker Jr., a Fitch analyst, said in an interview Tuesday that the primary task for CIT's management will be to increase its capital base and resist investor pressure to increase earnings too fast.
In its report on CIT, Fitch said its new rating was spurred by the IPO but also reflected "increased comfort" with its with liquidity management.
And many analysts share that view, especially since the company is planning to shed some higher-risk business lines, such as manufactured housing and recreational vehicle receivables, as well as inventory financing.
