Salomon Brothers analysts Bruce W. Harting, who has upgraded all the major California thrifts in recent months, last week singled out Coast Savings Financial as the "best value."
The $7.8 billion-asset Los Angeles thrift, which operates in the shadows of such neighbors as H.F. Ahmanson & Co. and Great Western Financial Corp., suffered earthquake-related losses in the first quarter that he said pushed the stock down.
Mr. Harting expects an earnings rebound to lift the stock to the mid-20s, from a price of $16.375 early Monday.
Mr. Harting's reiterated buy rating on Coast was the latest report to point to buying opportunities among California thrifts. Analysts expect the companies to benefit from a recovering economy, from renewed interest in adjustable rate mortgages, and from takeover speculation.
Mr. Harting said a robust recovery in California "is not necessary for the success of Coast."
The stock, he said, is trading at a discount to its tangible book value of $20.62 a share.
"We expect the stock to advance to at least book value or nine to 10 times core earnings power before positive earnings improvement becomes obvious to everyone on the street," Mr. Harting said.
He projects earnings of $0.94 a share this year, after the poor first quarter, and $2.48 in 1995.
The thrift is well positioned to grow its mortgage portfolio, Mr. Harting said. And, since 1987, it has gradually cleaned up credit problems to the point where if will become "an attractive acquisition play as other financial institutions look for a branch operation in the two major California metropolitan centers."
Other analysts see positive trends for California thrifts.
"In general, I'm very optimistic," said Gary Gordon at Paine-Webber Inc. Great Western, Ahmanson and Golden West Financial Corp. - as well as Coast, which he doesn't follow - focus on adjustable rate mortgages, and should be "getting some hefty loan growth" as a result, he said.
Mr. Gordon said the California economy appears stable. If the pattern of New England holds, the thrifts should begin to prosper before a full-fledged recovery is underway.
But Jonathan E. Gray of Sanford C. Berstein & Co., who does not cover Coast Savings, cautioned that the profit recovery at the California thrifts, companies will be "muted."
The thrifts' earnings are inflated, he said, because adjustable loans have hit their floor, while the California cost of funds, against which the loans are priced, has continued to drop.
At Great Western, for example, $8 billion of loans have yields 70 basis points above the normal spread between cost of funds and the rate paid by consumers. "If the cost of funds rises 70 basis points, that income will disappear," he said.
This floor income contributes 25 to 30 cents a share to Great Western, he estimated.