Gerard Klauer Mattison raised its target price on Norwest Corp. shares Tuesday, citing the banking company's ability to maintain earnings growth until at least 2000.
Veteran analyst George M. Salem boosted his 12-month price forecast to $45 from $42 and reiterated his "buy" rating. He lauded the company's acquisition strategy, product diversity, and marketing skills.
"Norwest's acquisition strategy makes dilution unlikely," he said in a new report. Chief executive Richard M. Kovacevich "seems determined not to overpay" in deals, Mr. Salem noted.
But the analyst said the picture is not perfect. Norwest shares already carry a high market valuation-a price-to-earning multiple of 22.7 times next year's expected earnings.
Mr. Salem said he was not deterred by the rich valuation. "Valued as a growth company and not as a bank, Norwest would be a very attractive stock at the current price," he said.
In Tuesday's market Norwest's shares fell 6.25 cents, to $37.50, on a day when most banks stock were struggling.
The Standard & Poor's bank index fell 0.08%, while the Dow Jones industrial average tumbled 0.75%. The Nasdaq bank index declined 0.22% and the S&P 500 0.67%.
Meanwhile, stocks of banks with assets of between $5 billion and $10 billion are hot. Such banks are considered merger jewels because they are digestible with minimal dilution, according to analysts.
Shares of one such company, $5.3 billion-asset FirstMerit Corp. of Akron, Ohio, surged as much as 7% on twice the average daily volume. The stock rose $1.375, to $30.
Analysts said FirstMerit would be an acquisition prize for companies like Fifth Third Bancorp or Star Bancorp, but doubted a deal is in the works.
"I wouldn't read too much in the activity of the stock," said bank analyst Ken Puglisi of Sandler O'Neil & Partners LP.
"But for any bank that wanted a presence in Ohio," FirstMerit would be attractive. "There aren't that many banks of that size in the state."