Citigroup Deal Looks Sweet: Still a Buy

The financial-services firm's $1.6 billion bank purchase will strengthen its presence in metro New York. Plus: opinions on Napster and Polaroid

Citigroup (C ): Maintains 5 STARS (buy)

Analyst: Stephen Biggar

The company agreed to acquire ABN AMRO's European American Bank for $1.6 billion. The move is a bit of a departure from recent deals as Citigroup moves to strengthen its traditional banking presence in the metro New York area. EAB's $11.5 billion in deposits will give the company a leading deposit share on Long Island, where Citigroup can also leverage extensive bank and insurance products set on the area's favorable demographics. The price paid for EAB is in line with recent transactions, with the deal structured to be accretive to EPS in 2001. We are keeping our 2001 EPS estimate at $3.10.


Analyst: Scott Kessler

The controversial music-swapping site, with some 60 million registered users, will be able to continue operating. But in remanding the case to lower court, the 9th Circuit court said an immediate future injunction of the Napster service wouldn't only be warranted, but required when the company is or should be aware it's facilitating copyright infringement. Clearly, the decision is positive for RealNetworks (RNWK ) and AOL Time Warner (AOL ) because they are proponents of pay-for subscription download music services.

Polaroid (PRD ): Maintains 3 STARS (hold)

Analyst: James Corridore

The company's move to suspend its quarterly dividend is not totally surprising, as Polaroid had previously indicated it was looking at all avenues to raise cash. However, we think the move shows that Polaroid's problems are not short-term issues. For those investors holding Polaroid for income, the loss of the 9%+ dividend yield hurts. However, on the positive side, the company was already cash flow positive and this move will have two positive effects. One, excess cash could be used for acquiring faster growth companies. Two, with more than $2 a share in cash already, Polaroid becomes a more attractive takeover candidate.

Plantronics (PLT ): Maintains 3 STARS (hold)

Analyst: Markos Kaminis

The company revised is fiscal Q4 EPS guidance down $0.07 to $0.34, and attributed the move to weakening its call center and office markets. We downgraded our rating on the company's shares to hold from buy in early January based on its increased near-term risk related to expected end-market weakening. Business investment is slowing, and Plantronics now sees fiscal 2002 EPS of $1.60 vs. previous $1.88. We believe the situation will worsen before improving, with a slowdown in PC and telecom markets to follow. However, despite a likely share-price drop Tuesday, we believe long-term investors will benefit as PC and telecom usage grows. Our estimates are still under review.

Phototronics (PLAB ): Maintains 4 STARS (accumulate)

Analyst: Tom Smith

The company posted fiscal Q1 EPS of $0.28 vs. $0.13, above the Street's $0.25 estimate. Revenue is up 36% from a year ago and up 2% sequentially. The surprisingly good results reflect mergers and more business in Asia. As the semiconductor industry moves to more advanced sub-0.25 micron process technologies, demand for new mask sets is rising. Order flow for masks stems from design changes, not changes in the volume of chip production. Mask business cycling is up, while most companies in the chip sector are caught in the slowdown. We view the company as a "moderate outperformer."

North Fork Bancorp (NFB ): Maintains 4 STARS (accumulate)

Analyst: Robert Tortoriello

We view the acquisition of Commercial Bank of New York as positive, despite a 51% premium to the current share price. CBNY has 11 branches in Manhattan, two in Queens, and one in Long Island. The purchase complements NFB's aggressive move into the Manhattan market, where it has been rapidly gathering low-cost commercial deposits. The company's entrepreneurial culture gives it a competitive advantage in a Manhattan market dominated by large bureaucratic banks. The shares are attractive at 13 times our EPS estimate of $2.00, with a yield of 2.8%.

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