An analyst at S.G. Warburg & Co. has recommended that investors switch out of shares of Barnett Banks Inc. into those of rival First Union Corp.

Besides going against prevailing Wall Street sentiment that Barnett is a takeover play, Francis X. Suozzo's recommendation represents a rare call by an analyst to switch from one bank stock to another.

In an interview, the analyst said he believed Barnett's stock price could drop by 10% to 15% over the next three months, after its recent surge.

52-Week High

Shares of the Jacksonville, Fla.-based banking company set a 52-week high of $43,625 last week, after a two-week rally.

Barnett stock has since edged downward, trading late Thursday at $42, off 50 cents. Meanwhile, First Union was at $38.50, up 12.5 cents.

Mr. Suozzo thinks First Union offers investors a total return of 25% in each of the next two years versus only a 10% yearly return in Barnett's stock.

And, contrary to conventional wisdom, Mr. Suozzo also believes Barnett is unlikely to be bought by another bank soon.

"It can't be completely ruled out of course," he said, "but I can't imagine it happening during at least the next five years."

Investors have been pouring money into Barnett shares in recent weeks on the belief that the company will be bought soon.

Looking to Policy Shift

Some analysts think President-elect Clinton's administration will make interstate banking a top priority. This would open the prospective bidding for Barnett beyond the Southeast. They reason that southeastern giants such as NationsBank Corp. will be pressed to go after Barnett before the law changes.

Mr. Suozzo acknowledged that recommending a switch in stocks means investors must sell Barnett shares, but he has a hold rating, not a sell, on Barnett.

A sell signal, he explained, implies a possible 20% fall in the stock price, which is more than he expects. Moreover, he thinks Barnett would be a buy candidate at $35. He currently rates First Union a buy.

The analyst's move came after he returned from an investment seminar staged by Barnett earlier this week. Despite the report, Mr. Suozzo termed it "one of the best presentations I've ever seen made by a bank."

Price Seen as Full

Nevertheless, Mr. Suozzo thinks Barnett's current price leaves little room for appreciation and at the same time "disregards potential risks, including major integration of First Florida Banks." The deal was approved Thursday by Florida's attorney general.

"The market has overbought Barnett and will soon have to reevaluate its near-term prospects," he concluded.

Mr. Suozzo and other analysts view Barnett's profitability as being on the upswing following a long bout with real estate lending problems. Still, he sees First Union as being "about a year ahead of Barnett in achieving" earnings of $5 per share.

"Barnett is doing a lot of things well right now, has added talent to its management, and operates a very valuable franchise in Florida," he said, but it won't earn $5 a share until 1995."

Dilution Called a Problem

Mr. Suozzo expects Barnett to earn $2.75 per share this year and $3.80 per share next year. He has a preliminary estimate of $4.30 to $4.50 for 1994. By contrast, he expects First Union to earn $3.80 per share this year, $4.30 next year, and perhaps $4.80 to $5 in 1994.

The analyst does not thinks Barnett "can ever fully recoup" the dilution incurred in buying Tampa-based First Florida. In comparison, he thinks First Union's recently announced acquisitions, including that of Dominion Bankshares, Roanoke, Va., will strengthen rather than dilute per-share earnings.

Following the meeting this week, analysts said Barnett intended to take a restructuring charge of up to $85 million in the fourth quarter related to its acquisition of First Florida.

Barnett is the largest banking company in Florida, with $33 billion in assets and a 27% of the state's banking market when First Florida is added.

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