Markets & Finance

Stock Picks: Citigroup, RIM


Plus Wall Street analyst opinions on M&T Bank and Diodes Inc.

Citigroup Inc. (C)

Standard & Poor's Equity Research maintains hold

According to an unconfirmed Wall Street Journal report on Dec. 8, the U.S. government is requiring Citigroup Inc. to raise $20 billion to repay TARP capital. S&P equity analyst Stuart Plesser said in a Dec. 8 note that he thinks a capital raise would significantly dilute shareholders and that Citigroup will refrain from an issuance until after the government sells its stake in the company.

Separately, noted Plesser, the report stated that the government is requiring Wells Fargo (WFC) to raise "billions" of dollars to repay TARP. "We don't think WFC is in any rush to repay TARP as compensation restraints associated with TARP are likely not as big of an issue for WFC compared to C," wrote Plesser.

Research in Motion Ltd. (RIMM)

Kaufman Bros. reiterates buy

After the close of trading Dec. 7, Research in Motion Ltd. announced an enhanced strategic partnership with China Mobile where it will support TD-SCDMA (3G) and TD-LTE (4G) wireless technologies as well as market BlackBerry smart phones to the enterprise, small business, and consumer markets. Kaufman analyst Shaw Wu said in a Dec. 8 note that while it is unclear if the deal is exclusive or precludes other deals, "it at least gives [RIM] a first-mover advantage at the largest carrier in China with 508 million subscribers."

Wu left his estimates of $14.5 billion in revenue and $4.08 in earnings per share for fiscal 2010 (vs. the Wall Street consensus forecasts of $14.9 billion and $4.15) and $17.1 billion in revenue and $4.75 in EPS for fiscal 2011 (vs. $18.2 billion and $4.82).

Wu believes "the addition of China as a growth opportunity gives RIM a greater chance of delivering if not exceeding our estimates." He has a price target of $93 on the shares.

M&T Bank Corp. (MTB)

SunTrust Robinson Humphrey upgrades to buy from neutral

M&T Bank Corp. was upgraded Dec. 8 by SunTrust Robinson Humphrey analyst Jennifer Demba after she cut her prediction for loan losses at the regional bank.

Demba wrote in a research note that M&T Bank is among the best run banks in the nation, and loan losses should be manageable even though they are likely to remain elevated industrywide.

Credit deterioration has slowed at M&T Bank, with losses in 2010 likely be slightly lower than those taken in 2009, Demba wrote in the note. The composition of losses, however, will shift from residential real estate loans to commercial and commercial real estate lending, she said.

M&T Bank's consumer loan losses have been smaller than anticipated, Demba wrote in the note. Demba predicts M&T's loan-loss provisions will total $620 million in 2009, $613 million in 2010 and $494 million in 2011. Provisions typically include money to cover loans written off as not being repaid and cash set aside to help protect against future losses.

Because of adjustments to her loan-loss provision estimates, Demba raised her earnings expectations for the bank for 2009, 2010 and 2011. Demba now predicts M&T Bank will earn $2.99 per share in 2009, $3.97 per share in 2010 and $5.00 per share in 2011. She had previously forecast earnings of $2.86 per share in 2009, $3.64 per share in 2010 and $5.88 per share in 2011.

She set an $85 price target for the stock, but said the price could reach $100 by the end of 2011.

Diodes Inc. (DIOD)

UBS upgrades to buy from neutral

UBS analyst Steven Chin upgraded shares of Diodes Inc. on Dec. 8 because of the semiconductor firm's growing exposure to the Chinese consumer sector. He also cited an expanding analog integrated circuit (IC) portfolio that offers upside to the company's sales and gross margin, and higher capital spending levels in 2010.

"Our checks suggest DIOD is pursuing a long term strategy to capture growing Chinese demand for electronics (handsets, LCDs, notebooks) and white goods," Chin wrote in a Dec. 8 note. "[W]e expect this to result in new sales growth and [gross margin] benefits going into 2010."

The analyst raised his sales estimates for calendar 2010 by 3% to $530 million and for calendar 2011 by 8% to $585 million. He hiked his earnings per share forecasts for calendar 2010 by 17% to 81 cents and for calendar 2011 by 31% to $1.06.

Chin also raised his price target on the shares to $24 from $22.


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