Magazine article American Banker

Lehman Upgrades First Bank, Downgrades Norwest

Magazine article American Banker

Lehman Upgrades First Bank, Downgrades Norwest

Article excerpt

Lehman Brothers analyst Mark T. Lynch upgraded First Bank System Inc. Monday to a "buy" from "outperform," based on valuation and earnings outlook.

At the same time, he lowered his rating on Norwest Corp. to "outperform from "buy." Both banking companies are based in Minneapolis.

"On the one hand, First Bank seems to have everything falling into place, and it is attractively priced" at around the average price-earnings multiple for regional banks, Mr. Lynch said.

"On the other hand, Norwest trades at a premium to the other banks, and they may have to do something new" to meet Wall Street's lofty expectations for future earnings growth, he said.

At the close of trading Monday, Norwest was off 12.5 cents at $25.625, and First Bank shares were unchanged at $31.125.

Norwest trades at about 10.6 times Mr. Lynch's 1994 earnings estimate of $2.40 per share. First Bank is priced around 9.1 times his forecast of $3.45 per share.

"The revenues have really begun coming through at First Bank, as shown during the third and fourth quarters," Mr. Lynch said. They have a strong retail franchise and are posting good loan growth, he noted.

Moreover, he said, stronger revenue growth is coming after a period of aggressive cost cutting that has improved efficiency for the bank.

For Norwest, meanwhile, the general feeling in the investment community seems to be that "their 15% [annual} earnings growth can go on, effortlessly, forever," Mr. Lynch said. The Lehman analyst is not so sure.

Slower Revenue Growth

"It seems to me that their 1995 earnings growth will have to come from different sources," he said. …

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