Countrywide Credit Industries Inc. showed a strong gain in earnings for its fiscal fourth quarter, which ended Feb. 29. One stock analyst saw it as a sign that industry consolidation was beginning to improve profits for the biggest players.

Richard Strauss, an analyst at Goldman, Sachs & Co., said the increase of 9 basis points in the company's production margin over that of the preceding quarter - to 28 basis points - was a surprise because the two previous quarters were steady.

"This tells you the mortgage market has recovered in a big way and pricing continues to get better," Mr. Strauss said. "The industry has really consolidated into the hands of a few big players and Countrywide has a big hand."

For the quarter, the company reported earnings of $57.6 million, a gain of $41.9 million from the year-earlier period. It said $14.2 million was attributable to the new accounting standards for servicing rights.

Challenges facing the company in the near future are competitive loan pricing, the interest rate environment, and expense control, said Thomas O'Donnell, a stock analyst at Smith Barney & Co., New York.

"The outlook is that all three are manageable," Mr. O'Donnell said.

Despite the company's strong showing, the stock is trading at a lower price than industry stock analysts think it should.

Mr. O'Donnell said Wall Street treats the company as one with cyclical earnings despite its ability to show strong earnings at the bottom of the cycle.

He raised his rating to "outperform" from "neutral," and increased his fiscal year 1997 earnings estimate to $2.45 from $2.30, because of the company's ability to produce strong earnings in fast-changing rate environments, its price cutting, and its cost control.

Jonathan Gray, an analyst at Sanford C. Bernstein, said he thinks Countrywide's stock may be 20% to 25% undervalued.

Mr. Strauss said the stock is trading at nine times earnings, or at about half of where he believes the stock should trade.

Gary Gordon, an analyst at PaineWebber Inc., increased his 1997 fiscal year estimate to $2.30 per share from $2.25. The company's financial hedge on servicing is working better than anticipated, a note Mr. Gordon released said.

The original outlook did not include any earnings contribution from Countrywide's home equity and subprime lending operations.

"That appears to be too conservative," the note continues. Selling those loans should add between 5 cents and 10 cents to earnings.

In addition, Mr. Gordon said other lines of business, such as title insurance, will add to company earnings. But he also expects some of the extra income to be offset by the company's investment in its retail and name brand advertising efforts.

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