Stock Picks: Citigroup, E*Trade, SunTrust, Williams-Sonoma

Wall Street analyst opinions on stocks making headlines in Monday's market

Citigroup Inc. Rochdale Securities analyst Richard Bove raised a rating on shares of Citigroup Inc. (C) to buy from neutral on Mar. 22.

In a note, Bove cited his argument that Citigroup, the recipient of the biggest U.S. bank bailout, has "turned around" -- that it has earnings power of greater that 70 cents per share and that the stock would "ultimately get back to $8.50 per share".

Bove said he had previously lowered the rating on the stock because he feared that the government's potential sale of 7.7 billion shares would cause "the issue to fall before it could rise".

He said an improving U.S. economy means an improving loan loss situation for Citigroup. "The company's balance sheet has too much liquidity and it is over-capitalized," the analys wrote. "This gives management the flexibility to off-load the problem operations and to support longer term growth".

The analyst also said that Citigroup is "the only truly international bank in the U.S. ... [t]his franchise makes it invaluable to large corporations everywhere".

Citigroup will be a "money making machine again", Bove wrote, calling the stock "long-term cheap".

Bove raised a price target on the shares to $5.00 from $3.75.

E*Trade Financial Corp.: Standard & Poor's equity analyst Matthew Albrecht kept a hold recommendation on shares of E*Trade Financial Corp. (ETFC) on Mar. 22.

On Mar. 22, E*Trade, the online brokerage that hasn't posted a quarterly profit since 2007, fell in U.S. trading amid speculation the naming of Steven Freiberg as chief executive officer signals the company isn't for sale.

In a posting on the S&P MarketScope service, Albrecht said that Freiberg "boasts executive experience across consumer facing businesses" over his tenure at Citigroup, which the analyst thinks will be a positive as the firm refocuses its efforts on its core client operations. Albrecht also noted that the company will also seek shareholder approval for a 1-for-10 reverse stock split at its May annual meeting.

"The higher resulting share price could attract new investors to the shares, and could prove a catalyst" for the stock, Albrecht wrote.

SunTrust Banks Inc.: Janney Montgomery Scott analyst Stephen Moss lowered a rating on shares of SunTrust Banks Inc. (STI) to neutral from buy on Mar. 22.

Moss said in a note that the regional lender's shares had increased 34% since the beginning of the year. While the company has improved its balance sheet, Moss said, it has more progress to make with problem loans before turning profitable. The analyst said SunTrust will likely incur "sizable" credit costs in fiscal 2010 as it works though stresses in the residential real estate portfolio.

The analyst said the recent price appreciation also makes a common stock offering more likely should management decide to repay its borrowings under the government's TARP program. Such an offering would be "materially dilutive" to his $3.60 earnings per share estimate, Moss said. He also noted that the company will not benefit from higher interest rates, unlike other banks.

Moss maintained a loss per share estimate of $1.75 for fiscal 2010 and established a 2011 loss per share estimate of 25 cents. He has a 12-month fair value of $28 on the shares.

Williams-Sonoma Inc.: Raymond James equity analyst Budd Bugatch kept a market perform rating on shares of Williams-Sonoma Inc. (WSM) on Mar. 22.

Williams-Sonoma Inc., the U.S. gourmet-cookware retailer, advanced to the highest level in almost two years on Mar. 22 after its fourth-quarter earnings and forecast for the current year beat analysts' estimates. Williams-Sonoma rose $2.40, or 9.9%, to $26.54 at 11:05 a.m. in New York Stock Exchange composite trading, after earlier touching $26.65, the highest intraday price since May 2008.

Earnings before one-time items were 86 cents a share in the three months ended Jan. 31, the company said. Nineteen analysts surveyed by Bloomberg estimated 74 cents on average. Revenue was $1.09 billion, compared with analysts' estimate of $1.07 billion. For the current fiscal year, the retailer forecast earnings excluding some items of $1.16 to $1.26 a share. Analysts predicted $1.03, on average.

Bugatch said in a note that the company's fourth-quarter adjusted operating EPS exceeded his estimate by around 9 cents, driven primarily by better gross margins, lower SG&A [selling, general, and administrative] expenses, and "slightly" better sales in its retail channel. The analyst said Williams-Sonoma issued detailed guidance for each of the quarters in fiscal 2011 (ending January), which was ahead of analyst estimates.

Despite the upside to EPS estimates in the fourth quarter, Bugatch said he "continues to be challenged" by the stock's valuation at about 20 times the midpoint of the company's fiscal 2011 guidance, compared with the 19.5 times five-year median.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE