Salomon Brothers analyst Diane Glossman Tuesday downgraded Wilmington Trust Co. to "hold" from "buy," after the company's stock surpassed her price target.
Shares in the Wilmington, Del.-based banking company fell 50 cents to close at $33.50. Ms. Glossman had a target price of $32.
The bank market suffered another day of declines, with the Standard & Poor's Bank Index dropping 0.27%.
In her report to investors, Ms. Glossman said Wilmington's stock is not likely to sustain the blistering pace it set in recent months. Wilmington's stock is up 10.5% this year, while its peers in Salomon's regional bank composite have fallen 2.7%.
The $5.4 billion-asset trust bank's shares are trading at 12 and 11 times 1996 and 1997 earnings estimates, respectively. Its peers trade at 11.6 and 10.4 times earnings, Ms. Glossman said.
Legg Mason Wood Walker analyst Janet McCabe, who rates Wilmington Trust "underperform," said that the bank has "more or less exhausted its ability to expand within the state of Delaware."
The bank has a market share in excess of 40% in Delaware, Ms. McCabe said. "They can only grow as fast as the state, and the state hasn't been growing as fast as the nation over the past several years.
"When you have to make margin expansion mergers, you have to incur dilution, which delays the benefits of expansion."
Ms. McCabe estimates Wilmington's annual earnings growth at 7% to 8%, and projects earnings per share of $2.75 for 1996 and $2.95 for 1997.
The Legg Mason analyst said that while Wilmington has sometimes been rumored to be a takeover candidate, it already trades at a premium above its book value.
Ms. Glossman is more comfortable with Wilmington's business prospects.
"This bank will be able to generate steady improvement in earnings per share from a combination of community banking, specialized trust services, and investment management, supplemented by regular share repurchases," Ms. Glossman said.
In other bank stock news, Gerard Klauer Mattison & Co. analyst George Salem upgraded Norwest Corp. to "buy" from "hold."
Mr. Salem had downgraded the bank last April, following the acquisition of Island Finance of San Juan, Puerto Rico.
"The acquisition prevented us from interpreting what was going on. Once that all cleared up over a couple of quarters, we went back to a more normal pattern," Mr. Salem said.
The Gerard Klauer analyst raised his 1996 earnings estimate to $3.10 per share from $3.05, and his 1997 estimate to $3.50 from $3.45. His 12-month price target is $45.
Mr. Salem said that Norwest should have a 20% premium relative to its peers, because it has real revenue growth and is well-positioned in the event of a recession.
"Norwest is a unique company, with 3,100 offices nationwide. Putting it all together, it could be said that it is the most national of any bank holding company when it comes to consumer business," Mr. Salem said.
Norwest's stock fell 12.5 cents to close at $36.25.
NationsBank Corp. and J.P. Morgan & Co., which were among the few gainers in Monday's market selloff, lost ground on Tuesday. NationsBank stock fell 62.5 cents to $75. J.P. Morgan shares dropped 62.5 cents to $82.50.
Bank of New York also was among the big losers for the day, dropping 75 cents to $51.875.