First Chicago NBD Corp. is the stock to own right now, according to analyst Thomas Brown at Donaldson Lufkin & Jenrette Securities Corp.
"The outlook is very attractive for the rest of this year and 1998," said Mr. Brown. He said he expects an acceleration of earnings growth driven by lower credit card losses, low expense growth at the regional bank, and an aggressive share buyback program.
Mr. Brown on Monday bumped up his rating on the stock to his firm's "recommend" list, from "buy." His target price is $85, "but that will be continuously raised as earnings estimates continue to rise."
Mr. Brown said First Chicago "really stands out" in the sector. He said he expects earnings to accelerate while most banks' "growth rates will be flat to down."
Shares of First Chicago closed up 31 cents, to $68.06.
Capital One Financial Corp., the Falls Church, Va., credit card issuer, was hit by a rash of downgradings last week, dropping 0.4% in First Call's analyst consensus ranking, or from the equivalent of "accumulate" to "hold."
Fox-Pitt Kelton weighed in, as analyst Michael L. Granger reduced his rating to "attractive" from "buy" because of "uncertainty over the earnings outlook." In a report Mr. Granger said the company performed "exceptionally well" in 1995 and 1996 but has underperformed since.
He said Capital One would "struggle just to have an up year in earnings." Though credit quality appears to be stabilizing, he said, "for at least the next quarter, we do not see much relief in the negative sentiment regarding the earnings outlook."
Susan Roth, credit card industry analyst at Donaldson Lufkin & Jenrette, is one of the few Wall Street analysts currently standing by the company. She maintains her "buy" rating on the stock.
"Current fundamental trends have been disappointing relative to expectations at the beginning of the year," she said, but "ultimately the value of the portfolio and Capital One's business is equal to at least $40 per share."
The stock gained 18 cents on the day, closing at $34.93.
Citicorp's stock dropped $2.50 by the end of trading, to $124.66, as analysts and investors continued to show concern about the quality of its second-quarter earnings. The stock has also been hurt by a number of rumors, including one that Saudi prince Waleed bin Taleel was considering selling his 12 million shares.
With several key economic indicators due this week, the market traded with cautious optimism, as bank shares outpaced the market.
The Standard & Poor's bank index rose 0.73 point, to 575.44, and the broad-market S&P 500 fell 2.34 points, to 936.45. The Dow Jones industrial average eked out a 7.67-point gain, to 8,121.11.
The week's flow of economic data begins today with the second-quarter employment cost index report, a key gauge of wage inflation. Also on the calendar is the first estimate of second-quarter gross domestic product, on Thursday, and on Friday the report on new jobs and the unemployment rate in July.
