Shares of Baybanks Inc. have been sizzling this summer, and money managers said the heat is still on.

Shares of the Boston bank are up 24% since mid-June.

That's a bigger gain in the period than all but two regional banks, Constellation Bancorp, Elizabeth, N.J., and First Eastern Corp., Wilkes-Barre, Pa.

Both signed merger agreements recently, Constellation with Corestates Financial Corp. and First Eastern with PNC Bank Corp.

The shares are inexpensive considering the strong consumer franchise of the bank," said Paul von Kuster, senior vice president at Peregrine Capital Management, a unit of Norwest Corp. in Minneapolis.

Even with the summer runup, BayBanks' shares are cheap. They were up 50 cents Tuesday to $48.50, which is 1.3 times book value - one of the lowest multiples among regional banks.

Merger Talk Seen as Factor

If the shares traded at 1.7 times book value - the group average - the price would be around $60, analysts said.

The bargain-basement price is only one of the reasons for the stock's climb this summer, said money managers and analysts.

BayBanks has told analysts that it has not ruled out a merger. Analysts believe it would be open to offers at the right Price.

Earlier this month, Dennis Shea, an analyst with Morgan Stanley & Co., repeated a "buy" recommendation on what he considers the "No. 1 regional."

At the same time, he increased his earnings estimates on BayBanks by 25 cents in each of the next two years.

Mr. Shea forecast earnings of $3.10 a share in 1993 and $4.10 per share in 1994.

|The L.L. Bean of Banking'

Last year, Baybanks earned $3.57 a share, about two-thirds of which came from securities gains. "Baybanks is the purest consumer marketing company I follow, the L.L. Bean of banking," he said.

No other bank, for example sends customers a catalog of services from which they can pick and choose.

But the biggest marketing strength comes from the bank's automated teller machines, 1,000 of them in eastern Massachusetts alone.

Partly because of that electronic network, BayBanks has a relationship with one out of every two households in that area, Mr. Shea said.

No other regional bank dominates its consumer market to that degree.

The franchise may be powerful but the bank's performance has been weak. In the second quarter, return on assets was 0.6% and return on equity 8.6%.

Hurt by Nonperformers

Bad real estate and other loans continue to depress the bank's results. At the end of the second quarter, the bank had $153 million in foreclosed real estate and $156 million in nonaccrual loans, according to First Boston Corp.

Shares of other New England banks with comparable levels of bad loans, however, trade at higher multiples to book value.

Peers Have Higher Multiples

For example, Shawmut National Corp.'s stock trades at 1.6 times book valuc.

Analysts said there is no reason for the gulf between the two banks' trading multiples.

"Those two stocks should be moving in lockstep," said Thomas Hanley, an analyst at First Boston.

One reason for Shawmut's higher multiple may be that Mr. Hanley and other analysts consider it a likely takeover target.

BayBanks' shares have only recently benefited from similar speculation. But Mr. Hanley said he does not expect the bank to accept a bid until either late 1994 or 1995.

When and if BayBanks does strike a deal, Mr. Hanley said, the price per share should be $88, or 2.25 times an estimated 1994 book value of $39.07.

Bank stocks rallied Tuesday, in step with a rising overall market. The Dow Jones industrial average closed up 32.98. points to a record 3,638.96.

J.P. Morgan & Co.'s shares jumped $1 to $74.375, Citicorp's $1 to $33, NBD Bancorp's $1.25 to $32.875, Bank of New York Co.'s $1 to $54.25, and Wells Fargo & Co.'s $3.75 to $116.75.

UJB Financial Corp.'s shares fell $1, to $28.875. The stock, which ran up significantly this year based on takeover rumors, has backed off recently as investors have been taking profits. An article in The New York Times on Tuesday threw more cold water on speculation that the Princeton, N.J., company would soon be acquired.

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