Shares of BankAmerica Corp. skidded in value on Tuesday after Lawrence W. Cohn of PaineWebber Inc. removed his "buy" recommendation.
The stock fell $1.375 to $40.375, making it one of the the worst performers among banks.
The analyst said he lowered his rating to "neutral" and sliced his earnings estimates for this year and next year after talking with the management of the San Francisco superregional bank.
"Revenue growth is just not as strong as I had hoped for," he said. "And this is seasonally the strongest part of the year for them." Mr. Cohn said the bank's management indicated that fourth-quarter results, due in January, will not hit the low end of his forecast. The analyst had been expecting $1.45 to $1.55 per share.
In changing his rating Mr. Cohn lowered his 1994 estimates to $5.35 from $5.50 and cut his expectation for next year to $6.25 from $6.80 per share.
"We've had an essentially negative view of the industry," Mr. Cohn said. "Those stocks we've recommended have been on the basis that their fundamentals would be so strong that they could essentially swim upstream.
"At $6.25 for next year, BankAmerica's earnings gain, while perfectly acceptable, is not sufficiently better than the average for the industry to really make it stand out."
Other bank analysts on Wall Street remain strong believers in BankAmerica.
"I think this is an extremely attractive situation right now," said Stephen Berman of Natwest Securities Corp. "The earnings are starting to grow at BankAmerica for first time in a while.
"I expect we will see $1.43 per share in the fourth quarter, which is a breakout from past quarters. Their earnings have stuck around $1.20 for three or four years" he said.
The bank will also benefit from the stabilizing economy in California after the state's prolonged recession, he said.
Mr. Berman also thinks investors are unduly concerned about the possibility that BankAmerica will make a large and dilutive acquisition.
"After talking with management, I'm convinced that their No. 1 priority is growing earnings per share and getting return on equity up," he said.
"I don't rule out some small product-type acquisitions," he said, but a major bank deal "seems down the list of their priorities right now. The main goal is to deliver the earnings in a consistent way."
Rising rates are also not a major cause for alarm, according to the Natwest economist.
"The fear is that BankAmerica will have to raise deposit rates by 75 or 100 basis points in the first quarter and that their margin probably will be hurt," he said.
"Since BankAmerica's margin is typically weaker in the first quarter, this could knock off a few basis points," he said. But I think they are going to hold their margin, year over year." The reason is that yields are now rising on BankAmerica's assets, particularly its portfolio of adjustable rate mortgages.
"That should more than compensate for any deposit-rate in-increases," he said.
As for derivatives, Mr. Berman acknowledged there is "no clear answer," but said BankAmerica has use these instruments less than other banks, relative to its size.
In general the San Francisco bank has pursued a more neutral strategy with regard to rate movements than other banks, he said, and thus is less liability-sensitive.
Finally, there is the price-earnings ratio. Mr. Berman's estimate for 1995 earnings at BankAmerica is $6 a share, up 12% from the $5.35 he expects for this year.
"At around $40 per share, that means you're paying roughly seven times earnings for a company whose earnings may grow 12%," he said. "That strikes me as being cheap."
