BankAmerica at Top of Merrill's List

BankAmerica Corp. will emerge from its combination with Security Pacific Corp. with the essential attributes of a successful industrial company, according to bank analyst Judah Kraushaar of Merrill Lynch & Co.

Citing expected cost advantages and market dominance - hallmarks of industrial might - Mr. Kraushaar added BankAmerica to his list of recommended stocks Wednesday.

BankAmerica's the One

"If we could own but one bank stock, our choice would now be BankAmerica," Mr. Kraushaar wrote in a research report that Merrill Lynch distributed this week. Moreover, BankAmerica will also have an "exceptional" opportunity to make further in-market acquisitions down the road, he said.

Since last month's merger announcement, BankAmerica's stock has hovered around $43 to $44 a share; it was trading at $42.875 late Thursday.

But Mr. Kraushaar predicted that the stock price will nearly double within several years. By 1994, he said, the bank should be capable of producing a sustainable return on equity of 18% to 19% and have a book value of as much as $49 a share.

A Glowing Assessment

With a sustainable return on equity at that level, BankAmerica would deserve to trade at a multiple of 160% to 170% of book value, which would translate into $78 to $83 a share.

Earnings, meanwhile, are projected to grow at a compound annual rate of more than 20% for the next several years, exceeding $8 per share by 1994, Mr. Kraushaar said.

His rosy scenario is based on the assumption that BankAmerica will write off 15% of its commercial real estate portfolio over the next three years.

Strong Even in Adversity

But even if the company wrote off 30%, its book value would still rise to $43 a share by yearend 1994, supporting a share price in the low $70s, Mr. Kraushaar maintained.

Right now, he added, BankAmerica's stock trades at about 130% of the pro forma book value of the merged institutions.

That's well below the average valuation of such other highly touted bank stocks as Bankers Trust New York Corp., J.P. Morgan & Co., Banc One Corp., Wachovia Corp., NBD Corp., and Norwest Corp., Mr. Kraushaar said.

Those stocks currently trade at nearly twice their book values, he noted.

Bank stocks were broadly lower in generally featureless trading.

Market activity overall seemed lackluster, as investors awaited today's release of August unemployment figures.

There's been speculation that a weak jobs report would prompt further credit easing by the Fed.

Among bank stocks, losers far outnumbered gainers. At the end of the day, Chase Manhattan Corp. was one of the few stocks in the plus column, closing at $20.125 a share, up 25 cents.

Other New York banks were mostly lower or unchanged.

On the West Coast, Wells Fargo & Co. was off $1.50 a share, at $72.50.

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