Wall Street's analysts, at least those whose firms were close to the initial public offering of
, didn't waste much time throwing their support behind the finance company that's once again public after being spun off from industrial conglomerate
On Monday, a week after the company priced its initial public offering, five analysts initiated coverage of CIT with buy, strong buy or similar ratings. One analyst, Ken Posner of Morgan Stanley, assigned CIT an underweight rating last week.
The five analysts recommending that investors buy the company's stock came from firms that were part of CIT's underwriting syndicate. Deutsche Securities, CIBC and Salomon Smith Barney all gave CIT a buy rating. Goldman Sachs placed CIT on its recommended list and Lehman Brothers initiated coverage with a strong buy.
In his research report, Goldman's Robert Hottensen said his price target of $30 on the stock "reflects one year potential upside of 36%" and a price-to-earnings multiple of only 8.5 times his $3.55 earnings estimate for 2003.
But he added "that the risks include a continued soft economy, potential near-term asset quality turbulence, and funding spreads, which while tightening could remain somewhat elevated given the current distress and uncertainty surrounding corporate accounting, tech and telecom, and a stubbornly 'sideways' economy."
Morgan Stanley's Posner said in his research note that credit quality concerns linger and that "CIT's credit performance over the last three years has been mediocre. We cannot rule out the risk of additional problems."
Shares of CIT closed up 33 cents, or 1.5%, to $22.40, above its $22.05 opening price but still below its IPO price of $23 for 200 million shares last week.
Only a Year
Tyco bought CIT in June 2001 for about $9 billion. Hedge fund managers and others said their reading of CIT's regulatory filings indicate that Tyco didn't make many significant changes during its year-long ownership of the finance company.
Tyco laid out plans earlier this year to return CIT to the public markets. At the time, Tyco was in the spotlight because of its complex accounting methods, and investors were fearful of anything that might become the next
, the energy trader that filed for bankruptcy last year amid a bookkeeping scandal.
Tyco set the CIT spinoff, and a plan -- since abandoned -- to break the remaining company into separate businesses in an attempt to deal with concerns about its accounting, debt load and flurry of acquisitions over the last few years. Since Tyco gave up its break-up proposal, former CEO Dennis Kozlowski has been charged with tax evasion and become the target of a
Securities and Exchange Commission
investigation, and the company has gone to great lengths to distance itself from its former top executive.
After getting regulatory approval to proceed with the CIT spinoff, Tyco just had to wait for the deal to be completed. CIT priced July 1 at $23 a share, below the expected range of $25 to $29, and provided Tyco with $4.6 billion. About $5 billion to $5.8 billion in proceeds had been expected.
Though the lower than expected pricing was a disappointment for Tyco, CIT's supporters hope the company can move past its year with the conglomerate. But investors don't appear willing to forgive and forget just yet.
"I still think there is that perception of the Tyco taint, the possibility that Tyco fixed the numbers
in its filings," said Tim Ghriskey, president of Ghriskey Capital, a hedge fund. "I don't believe so, but is it possible? Sure."
Ghriskey said that in the current environment, companies are "guilty until proven innocent." Still, Ghriskey and several others argue CIT is a solid company. "If it weren't for Tyco,
CIT would be a corporate holding for many portfolios," he said.
Other observers see value at the current level. "We started to bottom fish on this around $22. We think the stench of Tyco will go away," said Mark Haefele, chief financial officer and chief operating officer of Sonic Capital and co-manager for a Boston-based hedge fund. (Haefele is also a contributor to
, a sister site to
Haefele said he believes CIT's share price will go up as the company distances itself from Tyco, proves to have clean books and shows it can execute its business well enough. "It will be up in a year if it does these things," he said.