Stock Picks: Citigroup, BofA

Citigroup Inc. (C)

Oppenheimer reiterates perform

Citigroup Inc. shares fell sharply in premarket trading Dec. 17, a day after the bank priced a stock offer at a steep discount and the government said it wouldn't immediately sell a portion of its stake in the bank.

After the market closed Dec. 16, Citi said it would sell 5.4 billion shares of common stock at $3.15 per share to help repay $20 billion in government bailout money. The price represents a discount of nearly 9 percent from Wednesday's closing price of $3.45. Citi received $45 billion as part of the Troubled Asset Relief Program. The government converted $25 billion of that investment into a nearly 34-percent stake in the bank.

Earlier this week, the government said it would sell $5 billion worth of common stock it held in Citi at the same time the bank sold stock to repay TARP money. However, the government opted not to participate in the offering. The Treasury Department paid $3.25 per share for its stake, which means it would have lost 10 cents a share, or about $158.7 million, in the offering.

Oppenheimer analyst Chris Kotowski said Citi's agreement to sell shares to repay TARP before the government sold its stake in the bank was a mistake that will cost taxpayers. Kotowski wrote in a research note that the government had plenty of time in recent months to sell its Citi stock for more than $4 per share. Citi shares were trading above $4 as recently as last week.

Now the government will struggle to get such a price because of the dilution from the new stock Citi is selling to repay the $20 billion, Kotowski said.

The government still plans to unload its 7.7 billion shares sometime in the next 12 months. It will wait at least three months, though, to start selling any shares. Kotowski estimated the government now owns about 26 percent of the bank instead of nearly 34 percent.

Bank of America Corp. (BAC)

Standard & Poor's Equity Research keeps strong buy

S&P equity analysts Stuart Plesser and Matthew Albrecht noted on Dec. 17 that BofA named Brian Moynihan to succeed Ken Lewis as president and CEO. Moynihan is currently president of Consumer and Small Business Banking at the banking giant, and has held a variety of senior leadership roles in the company, they noted. "We applaud the promotion of an internal candidate, which should allow for continuity of management and strategy," they wrote in a Dec. 17 note. The analysts also think the resolution of this executive search "has eliminated an overhang on the shares".

S&P kept its $22 price target on the shares, and the analysts expect loan provisioning to decline late in 2010, "providing an earnings catalyst" for the share price. First Solar Inc. (FSLR)

Canaccord Adams maintains hold; raises price target

Shares of First Solar Inc. edged higher in premarket activity Dec. 17 after the nation's largest solar panel maker predicted 2010 sales above analyst estimates, and said it would expand production at its Malaysia plant.

The Tempe, Ariz., company on Wednesday projected sales between $2.7 billion to $2.9 billion for 2010, up from estimated 2009 sales between $1.98 billion to $2.03 billion. The company forecast per-share profit in a range from $6.05 to $6.85.

Canaccord Adams analyst Jonathan Dorsheimer cautioned that the company's expansion in a "somewhat uncertain demand environment" is weighing on margins. "Gross margins as the systems business ramps are falling to below 40 percent from above 50 percent last year," said Dorsheimer in a note to investors. He maintained his hold rating but boosted his price target by $15 to $130.

First Solar said it would spend $365 million to expand its Malaysia plant. First Solar said its capacity will increase 48 percent from current levels as it adds 10 production lines in Malaysia and France during 2010 and 2011. It had previously announced the French factory expansion.

Alexander & Baldwin (ALEX)

Stephens Inc. upgrades to equal-weight from overweight; raises price target

Stephens Inc. analyst George Pickral upgraded shares of Alexander & Baldwin on Dec. 17, saying that the shipping and agribusiness company could benefit from the U.S. military's move of operations from Japan to Guam.

"We believe the military's move from Japan to Guam will be a multi-year, multi-billion dollar undertaking, and ALEX is well-positioned to benefit," wrote the analyst in a note to clients. Pickral estimates $700 million will be spent in fiscal 2010 (which began October 2009). "We consider this a startup amount and believe billions [per] year could be spent," he wrote. He estimates the company's shipping of U.S. military supplies and equipment to Guam could ultimately add another 20 cents to its earnings per share.

As for the company's real estate operations, Pickral thinks the company will be a net buyer of property during the current downturn and "position itself for increased long-term profitability".

He hiked a price target on the shares to $41 from $26.

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