'Undervalued' National City May Soon Attract Investors

National City Corp.'s shares may soon look attractive to investors seeking underpriced bank stocks with strong credit quality, analysts said.

In reiterating a "hold" rating on the Cleveland banking company's shares Tuesday, analyst Jennifer A. Thompson of Putnam Lovell Securities Inc. said the stock "showed signs of stabilization in the second quarter" and that she sees upward momentum "based on potential improvements in short-term fundamental outlook." Ms. Thompson said her lukewarm rating reflects National City's lack of diversification, which could restrain its long-term earnings. "The business model is still lagging," she said. Her report also said that the banking company is struggling with margin pressure. But she called its credit quality a "bright spot" and said that as investors seek shares with "limited downside risks" National City could offer an investment opportunity.

National City shares lost about a quarter of their value after the company announced last November that it would miss fourth-quarter earnings targets, and they have remained depressed ever since. Shares of the $84.6 billion-asset company were at $18.219 on July 17 when it reported second-quarter earnings of 56 cents per share. Chargeoffs amounted to 0.44% of average loans in the second quarter, the same as in the first.

National City shares have recently traded at nine-times Ms. Thompson's 2001 earning estimate of $2.35 per share - a 21% discount to the peer group, she said. "In our opinion, a reasonable trading range for this stock over the next 12 months would be $24 to $27 per share," Ms. Thompson wrote. National City closed at $21.125 on Tuesday, up 6.25 cents, or 0.3%.

Henry C. Dickson of Lehman Brothers said the low market valuation of National City justifies his "outperform" rating. Management can "get the company going again," he said, adding that the company's dividend of 57 cents per share for the first half was up 9.6% from the same period of 1999.

Meanwhile the Richmond, Va., brokerage and investment banking firm Anderson & Strudwick, which is expanding its coverage of the banking industry, initiated coverage of Community Bankshares Inc., Petersburg, Va.

Analyst Bryce Rowe said the investment house, which formed a banking division in March, covers seven banks and wants to step up research to about 35, focusing on companies with less than $1 billion of assets.

Mr. Rowe said that Community Bankshares is one of the "stronger banks in the region" and fits Anderson & Strudwick's focus on regional and community banks in or near Virginia. He pointed to the company's attempt to consolidate its three subsidiaries into one brand to reduce expenses and provide better customer service.

Community Bankshares is trading at "an attractive" 8.3 times Mr. Rowe's 2000 earnings estimate of $2.17 per share and offers a 4.4% dividend yield. His target price is $22 a share. On Tuesday the regional banking company closed at $18.50, down 25 cents, or 1.33%.

Also on Tuesday, Susan L. Roth at Donaldson, Lufkin & Jenrette Inc. reiterated her "buy" rating for Chase Manhattan Corp. Chase was up 81.25 cents, or 1.44%, to $57.125.

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