Industries, citing unexciting prospects for earnings growth. Gary Gordon of PaineWebber Inc., New York, changed his rating Tuesday from "outperform" to "neutral." He said he expects the stock of the Pasadena, Calif., lender to perform pretty much in line with the general market during the next 12 months. Mr. Gordon estimated the company's tangible book value and the worth of its $150 billion servicing portfolio as $20 a share, the loan production business as $2 to $6 per share, and businesses such as title insurance and homeowner's insurance as $2 a share. That totals $24 to $28 a share, and Countrywide's stock is trading near $27. But Mr. Gordon added that the stock price was not the only reason for his rating change. Though the servicing portfolio has grown this year, he said, profit margins have not. As a result, he said, it would be difficult for the company to generate earnings growth as great as 10%. The one area of Countrywide's business that Mr. Gordon thinks will exhibit stronger growth is "B" and "C" loan originations. Countrywide, which started originating subprime loans last year, has had healthy increases in volume. However, Mr. Gordon said any significant earnings growth from subprime lending would be thwarted because of the intense competition in this segment. "The problem from my view is market pressures," he said. "This is a good company trying to fight off strong market competition." Thomas O'Donnell, a Smith Barney analyst who covers Countrywide, disagreed. "This is still a large underserved market. Countrywide has quickly become a formidable competitor in that market," he said. Mr. Gordon said rates on long-term bonds would have to fall below 5.5% or profits from B and C lending would have to be stronger than he is forecasting in order for the stock to outperform the market. But Mr. O'Donnell still likes the stock because its large servicing portfolio has enabled the company to do well in different rate environments - unlike mortgage banks that fare poorly when rising interest rates crimp loan originations. He added that the shares could trade at $28 to $30 in the near term.

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