Bullish Analyst Spies A Bargain in Barnett

After a difficult year, the skies seem brighter for Barnett Banks Inc., Florida's largest banking company.

"Barnett is on the road back to normalized profitability. Earnings and profitability are in a period of sustained improvement," said Thomas K. Brown, a banking industry analyst at Donaldson, Lukfin & Jenrette Securities Corp.

But caution is still advisable. Analysts at Keefe, Bruyette & Woods Inc. termed recent third-quarter results "encouraging," but sharply lowered their 1992 earnings estimate for Barnett to $2.60 from $3.25 a share because of "continuing weakness in the economy."

Looking at 1994

Even Mr. Brown, one of Wall Street's most bullish bank analysts, said earnings will not climb back to healthy levels until 1994.

The bank has suffered several jolts this year. It was a required by the Securities and Exchange Commission to restate 1990 results, and rival First Union Corp., Charlotte, N.C., won the bidding to acquire Miami's failed Southeast Banking Corp.

Barnett's stock price has doubled in the past 12 months, but that is because shares of the Jacksonville-based company had plummeted earlier. At low ebb, the stock traded at $15, just 50% of its book value per share.

Late Tuesday, Barnett was ahead 50 cents to $31.375, or about 115% of book value. But it is below its 1990 high and is still considerably undervalued compared with with other super-regionals in the Southeast, which are fetching 145% of their book value, on average.

Mr. Brown asserted that the performance of Barnett's stock during the past two years "gives Wall Street a black eye."

That the company's stock fell to a level just three times its normalized earnings, which he estimates at $5 a share, "shows how fear leads to short-term over-reactions by Wall Street analysts and investors," he contended.

Mr. Brown acknowledged that Barnett has been a controversial stock for the past two years and conceded that bearish fears in 1990 turned out to be correct. "Credit problems were much worse than many of us anticipated, and earning were disappointing," he said.

Consistent Improvement

Still, he said, the company has not lost money in any quarter, and results in the first three quarters of this year "have shown consistent improvement."

He expects that Barnett's recovery in earnings over the next two years will be accompanied by a rising stock price.

Mr. Brown's target price is $45 a share over the next 12 months and $55 over the next 24 months, or 75% above the current level.

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