NEW YORK (
(CIT - Get Report)
's share price reflects the possibility it will be acquired, though a sale of the lender will likely take some time, according to an analyst report published Monday.
Drexel Hamilton analyst David Hilder nonetheless upgraded CIT shares to buy from hold Monday, citing $2 billion, or $10 per share in "excess capital" -- meaning capital that is not required by regulators and so can be used for share repurchases or dividends.
CIT has more freedom to pursue buybacks or dividend hikes after the Federal Reserve Bank of New York last month terminated a "Written Agreement" from August 12, 2009. The lifting of the agreement is widely seen as a signal regulators are more comfortable with CIT's management and capital plans following its emergence from bankruptcy in late 2009.
Hilder established a 12-month price target of $52, representing about 12.7 times his 2014 earnings estimate of $4.10 per share and 108% his estimate of year-end 2014 tangible book value of $48. CIT shares were up 2.95% to $47.12 in late morning trading Monday.
Calling CIT "a relatively new bank holding company with significant commercial asset origination capabilities, but relatively limited deposit gathering capacity," Hilder stated it "would appear to be an attractive acquisition target for banks that are awash in deposits but are struggling to generate asset growth at attractive spreads."
While he noted recent statements from CEO and Chairman John Thain that he and other top management want the company to remain independent, he also pointed out Thain's openness to a deal if it proves advantageous to shareholders.
Reducing the likelihood of a near-term deal are "concerns in Washington about the size of the largest U.S. banks, and the very real delay that seems to be built into the Fed's approval process for acquisitions involving any of the 50 largest bank holding companies (which would include CIT)," according to Hilder's report. Nonetheless, he argues "its market valuation [will] continue to reflect some potential takeover value because of its unusually rich mix of commercial assets."
Written by Dan Freed in New York