CIT Group's Asset Sale Adds 2% Upside To Shares, Says BMO Analyst

James Fotheringham of BMO Capital Markets now sees 2 percent upside in CIT Group Inc. CIT shares as he raised his price target by $5 to $37 following the company's decision to sell Commercial Air business.

CIT is selling its Commercial Air business to Avolon Holdings for $10.0 billion. The sale is expected to close by the end of the first quarter of 2017, subject to regulatory approvals and customary closing conditions.

The analyst said the announced sale price (1.2x BV versus his 1.3x estimate) is slightly lower than expected. However, the company's expected return of capital to shareholders ($3.3 billion) is in line with his estimate.

CIT would return $2.975 billion of common equity to shareholders and an additional $325 million of common equity contingent upon the issuance of a similar amount of Tier 1 qualifying preferred stock. The company would also pay common dividends of $64 million a year upon completion of the deal.

Meanwhile, the analyst still rates CIT shares Market Perform as he "continue to prefer consumer over corporate credit exposure‎ among U.S. lenders, and we worry that CIT might struggle to hit its 10% RoATCE target by 2018."

Fotheringham cut his core EPS forecasts in 2016 (to $2.24 from $2.25) and 2017 (to $2.36 from $2.55). But, he raised his 2018 estimate (to $3.84 from $3.08).

At time of writing, shares of CIT were down 0.22 percent to $36.85.