BankAmerica Corp. Wins a Morgan Stanley Upgrade to 'Strong Buy'

BankAmerica Corp. stock has been rising lately, spurring some debate among analysts over just how high the shares will fly.

The stock rose 75 cents Thursday to $63, after Morgan Stanley & Co. analyst Arthur P. Soter upgraded it to "strong buy" from "outperform."

Mr. Soter raised his 1995 earnings estimate to $6.45 from $6.25, and lowered his estimate for 1996 to $7.20 from $7.25.

He raised his 12-month target price to $76.

Other analysts didn't dispute the market's favorable view of BankAmerica of late, but they did have differences on how much upside is left in the company's stock.

Ronald I. Mandle of Sanford C. Bernstein & Co., maintains a "buy" rating on a bank, saying it is"shareholder oriented."

He cites management's announcement last week of an incremental repurchase of preferred stock.

Additionally, the bank is among a growing number of institutions that tie compensation for senior executives to stock performance, said Mr. Mandle.

These compensation programs "make management think more like owners," said Mr. Mandle.

Bank of BostonCorp. also has such performance incentives, which provide for special stock bonuses when the stock reaches a particular price.

BankAmerica has faster growth in revenue than in expenses, Mr. Mandle added. He predicts earnings to be a little above consensus expectations this year and moderately above expectations next year, excluding any benefit from the reduction in Federal Deposit Insurance Corp. premiums.

Some analysts expressed concerns that the bank will need to take higher loan loss provisions. The $100 million provision for the second quarter is "well below what we consider to be sustainable," said Raphael Soifer, a bank analyst at Brown Brothers Harriman & Co.

Mr. Soifer said that BankAmerica's $100 million provision for the second quarter of 1995 should have been closer to $311 million.

That difference represents 32 cents a share after taxes, which Mr. Soifer said makes the shares of BankAmerica look "fairly valued."

BankAmerica's provision isn't the only one to raise eybrows, said Mr. Soifer, noting that First Interstate Bancorp and Wells Fargo & Co. have zero loan loss provisions.

Raising another possible concern about BankAmerica, Bear, Stearns & Co. analyst Lawrence Vitale said there was some turmoil in senior management caused by uncertainty over the futures of vice chairmen Lewis W. Coleman and Luke Helms.

Other analysts, however, dismiss the notion that there is turmoil, and maintain that the loan loss provision is appropriate.

Last year, said Mr. Mandle, BankAmerica charged off $470 million and provided $460 million.

"This year, I think they'll be very close to a balance as well," said Mr. Mandle.

Additionally, Mr. Mandle said that while there is some uncertainty regarding a few senior managers at BankAmerica, he said it wasn't turmoil.

"If there's an unsettled issue, it's what Lew Coleman will do," said Mr. Mandle.

Separately, Dennis Shea of Morgan Stanley initiated coverage of Star Banc Corp. with an "outperform" rating, setting a 12-month target price of $70 for the stock.

Shares in the Cincinnati-based bank rose 62.5 cents Thursday to $54.875.

Mr. Shea applauded the bank's efforts to replace investment securities and first mortgages with prime or prime-plus loans, which presents an increase in yield of better than 300 basis points.

"I believe mortgages, whether mortgage-backed securities or first mortgages, are a very difficult asset for a bank to hold," said Mr. Shea. "I've finally found a bank that agrees with me."

Bank consolidation has helped the shareholders of banks like Star, said Mr. Shea, because "it pushes banks to find new levels of profitability."

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