Signet's rally continues after strong initial rating by Smith Barney analyst.

Shares in Signet Banking Corp. surged toward a new high on news that Smith Barney analyst Kristina Andersson had initiated coverage with an outperform rating.

The Richmond, Va., bank's stock rose sharply to $42.875 early Monday afternoon, and looked as if it would quickly challenge its yearly high of $43.8750.

By the close of trading Monday, however, Signet's stock had stalled at $42.875, the result of profit taking. The stock had been rising steadily since Thursday, when it closed at $41.50. Friday it was up 1 point, to $42.50.

Ms. Andersson, who could not be reached for comment, became the latest to bless Signet with a positive recommendation on the strength of its strong credit card portfolio, which outperformed everyone's expectations in the first quarter.

"Their business is going very well," said Moshe A. Orenbuch, an analyst with Sanford C. Bernstein & Co. "Credit card balances were up 109% i the first quarter over last year. Earnings for their credit card business were up 147% in the quarter. That general trend should continue."

Analysts also noted that even though Signet has a low rate of return on equity now - about 10 percent - the bank is taking the necessary steps to improve that figure. One of those steps is the previously announced plan to spin off the credit card business into a separately capitalized operation.

"They are standing behind their annoucnement to break off their credit card business," said Michael Plodwick, an analyst with C.J. Lawrence/Deutsche Bank Securities. "They expect to add $800 million to receivables inthe second quarter. If they keep that pace, they should do substantially better than the $2 billion they predicted in January."

bernstein's Mr. Orenbuch thinks Signet's receivables will grow by between $900 million and $1 billion this quarter.

"Signet had a sound first quarter," said James H. Weber of A.A. Edwards & Son. "it was stronger than anyone expected. We expect that strength to continue into the second quarter and through the rest of the year."

While the analysts agreed that Signet will continue its healthy growth, some were beginning to urge caution. Most said the earnings growth will eventually slow, but when that downturn comes, it won't be highly significant.

"There has been no material slowdown yet," said Thomas McCandless, an analysis with PaineWebber. "They have been making a couple of hundred million a month.

"Signet repriced $600 million in receivables in April alone," he said, referring to the possible impact on receivables growth when teaser rates on credit cards expire. "But they are not saying how many accounts were lost through attrition."

Mr. McCandless added that he thinks second quarter receivables growth will come in at about $800 million.

Mr. McCandless said that as the company is valued now, its credit card operations are worth anywhere from the low- to mid-$40s a share and the banking operation is worth between $9 and $12 a share.

"If you're buying the credit card operation, it's like getting the bank for free," he said.

He also said Signet's stock probably will break its yearly high of $43.50 soon, possibly by the end of the quarter.

"Consumer spending has picked up tremendously," he said. "That's a trememdous wind at your back. I argue for a lot higher valuation on this company. They continue to outperform the market and to surprise investors."

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