Sterne Agee Raises Price Target On CIT Group

Sterne Agee is raising its price target from $45 to $50 on CIT Group CIT. This increase reflects a number of things: 1) the company is almost finished with the process of paying down high-cost debt; 2) credit quality is stable and origination momentum encouraging; and 3) comparable valuation ratios have moved higher. Sterne is holding its 2012 earnings potential EPS estimate at $4.30. The price target reflects a number of views on valuation discussed in this report including a calculation of realizable or economic book value and an analysis of the expected benefit of right- sizing the company's equity levels in 2012. Sterne is keeping its 2010 and 2012 EPS estimates at their current level, but lowering the 2011 EPS estimate from $3.00 to $2.75. The reduction reflects a refinement of expected loan and debt discount accretion. We are also assuming that most of the accelerated discount accretion related to faster than expected loan repayments occurs in the latter part of 2011. The 2012 EPS estimate reflects a very modest impact from fresh-start accounting. Sterne has a Buy rating and $50 PT on CIT CIT closed Thursday at $41.09