Stocks: Despite Downgrade, Firstar Climbs with Sector

Shares of Firstar Corp. shrugged off a downgrade and joined banks and other stocks as they rallied from Monday's slide.

The Milwaukee banking company, reduced to "hold" from "buy" by analyst James M. Schutz at ABN Amro, rose 25 cents, to $41.375.

Other gainers included BankBoston Corp., $3.50, to $111.875; Citicorp, $2.0625, to $143.625; and Comerica, $2.125, to $107.125.

The stocks were recouping ground that was lost on Monday's hints of inflation from potentially higher oil prices. Investors returned to the market, recognizing that "the rate and economic environment is favorable" for shares to continue to gain, said Frank J. Barkocy, an analyst at Josephthal & Co.

Bank stocks in particular "still have a good head of steam," Mr. Barkocy said.

For the day, the Standard & Poor's bank index rose 1.38%, and the Dow Jones industrial average was up 1%. The Nasdaq bank index gained 0.46%, and the S&P 500 was up 0.92%.

Mr. Schutz acted on Firstar after a newly completed restructuring effort left him unimpressed and unconvinced.

"I have difficulty identifying the originally projected benefits," Mr. Schutz said.

"The company, if it remains independent, will need to bridge a credibility gap with the investment community," he added.

In reducing his 1998 earnings estimate by 12 cents, to $2.10, and 1999 estimate by 15 cents, to $2.30, Mr. Schutz cited lackluster loan growth and "stubbornly high" operating expenses.

"Absent an acquisition or the immediate anticipation of a pending acquisition," Firstar will have trouble outperforming its peer group in the next 18 months, Mr. Schutz said.

Hibernia Corp. shares rose 12.5 cents, to $21.125, after Mr. Barkocy reduced his first-quarter estimate by 2 cents, to 25 cents, citing some near-term dilution from three recent acquisitions.

Longer term, Mr. Barkocy is quite bullish. "Discussions with management indicated that the earnings outlook remains strong," he said.

Mr. Barkocy maintained his full-year estimate of $1.12 and reiterated his focus list recommendation for the New Orleans banking company. The stock is likely to hit $25 within the next six to 12 months and climb to $32 within 18 months, he said.

NationsBank gained $1 to $74.4375, after being placed on the "bullish" list of Joseph W. Sunderman at Schaffer Investment Research.

"Short-term traders should target a move up to $79.50," as shares of the Charlotte, N.C., banking company gain ground, Mr. Sunderman said.

North Fork Bancorp rose $1.125, to $38.75, after management declared a three-for-two stock split, increasing the outstanding shares to 141 million from 94 million.

The Melville, N.Y., banking company also boosted the quarterly dividend by 25%, to 18.75 cents a share. Chairman John Kanas called the action "an appropriate reward for our shareholders as our company continues to achieve superior financial returns."

North Fork is on the verge of completing the acquisition of New York Bancorp, which would boost assets to $10.1 billion.

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