Friday, Credit Suisse initiated coverage of Marshall & Ilsley Corp. (MI) stock with a Neutral rating and a price target of $7. The brokerage established its 2009 fourth quarter loss per share estimate of $0.87, and its 2010 loss estimate of $1.39.
Analyst Siegenthaler noted that MI is trading at 5.4 times his normalized EPS estimate of $0.96 and 0.7 times his trough tangible book value estimate of $7.6. As the analyst looks for the company's PE multiple to improve to 12 times in a normalized environment, MI could potentially provide 120-125% upside over the next three years (~30% annualized).
The analyst views MI's return profile as fair relative to the risks given that MI has greater credit risk than peers, net charge-offs would improve but remain elevated in 2010, and he does not expect MI's EPS to recover as quickly as peers due to the company's relative reserve levels.
Additionally, while the analyst believes both MI's non-performing loans and net-charge offs may have passed cyclical peaks, capital ratios will continue to be pressured by elevated provisions in 2010, related to MI's commercial real estate and bank holding company loan portfolios.
The analyst would look for the Y-9C filing release, by November 15, as the next catalyst for MI. The filing will offer greater granularity on delinquency and loss trends by loan mix.
Currently, MI is up $0.01 or 0.29% and trading at $5.26.
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