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NewAlliance May Lure A New Ally

Only three of nine analysts who track NewAlliance Bankshares (NAL), a Connecticut- based regional bank with $7 billion in assets, are bullish. The rest worry that third-quarter earnings may disappoint the Street. So why is its stock popping--up from 13 in June to 15.17 on Oct. 11, near its 52-week high? Indeed, it is trading at more than 29 times its 2006 earnings estimate of 50 cents a share. The reason: takeover talk. Collyn Gilbert of investment firm Ryan Beck, which took the bank public in April, 2004, says investing in the stock provides a "decent defensive alternative" in the current market environment, "with the upside of being a potential takeover within the next 12 months." In the event of a buyout, she puts the value of NewAlliance at 18 to 20 a share. She believes the bank will repurchase shares to help establish a floor in the low 14 range. Given the "attractive risk-reward" she sees in the current price, she maintains her "outperform" rating. Gilbert forecasts earnings of 62 cents a share in 2007, vs. 2005's 50 cents. Matthew Kelley of securities firm Sterne Agee & Leach Group, who rates it a "hold," also says NewAlliance may get a boost from a deal. He notes that with 5.8% of the bank deposits in Connecticut, NewAlliance is the fifth-largest in the state.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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