Citigroup Downgrades CapitalSource to 'Hold'

Analyst Matthew Vetto downgraded the commercial loan company on valuation

Citigroup downgraded CapitalSource (CSE ) to hold from buy.

Analyst Matthew Vetto says he's raising the commercial loan company's $22 target to $27, but he downgraded on valuation, given the modest 14% expected total return. While he's optimistic about CapitalSource's prospects, the cyclical improvement in general commercial and industrial loan growth, and the credit environment, he believes the assumptions underlying his target price already contemplate rapid asset growth, benign credit, and competitive conditions -- leaving little room for surprising adverse developments.

Vetto says the stock's 63% move from its intial public offering pricing places it at a healthy 26.9 times his 2004 estimate and 19.8 times his 2005 earnings per share estimate.

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