Fifth Third Bancorp shares gained on Wednesday after Kidder. Peabody & Co. initiated coverage of the Cincinnati company with an "outperform" rating.

The stock was ahead 50 cents to $54 in late trading but is still 8% below the 52-week high of $58.50 set on April 14. Most banking stocks began receding from their peaks around that time.

Susan L. Roth, Kidder's banking analyst, acknowledged that Fifth Third shares are still not cheap at 16.7 times her 1993 estimated earnings.

Strong Balance Sheet

But she said the bank's strong balance sheet and record of above-average earnings growth "argue for a premium valuation."

Ms. Roth had followed Fifth Third as an analyst at Montgomery Securities before joining Kidder in March.

The analyst said she expects earnings at Fifth Third to advance 16% this year to $3.20 per share from $2.75 last year and gain another 14% in 1994 to $3.65.

According to First Call Corp., the consensus estimates for earnings at Fifth Third are $3.19 per share this year and $3.64 in 1994.

Dividend Growth

Ms. Roth said she expects investment returns from the stock to "compound in concert with earnings over time" and that its dividend growth "should match or possibly exceed the growth of earning s per share.

The analyst recommended aggressive purchase of the stock on any pullback toward the $50 level. Fifth Third's shares hit their most recent low at $52 last week.

The stock is among the most highly valued in the bank sector because of the company's well-regarded management, sterling financial track record, and importance as a player in electronic payments processing.

High Valuation

At the close of trading on Tuesday, its stock traded at 309% of book value.

This is high even when compared with other highly valued bank stocks.

For example, Wilmington Trust Corp. shares trade at 261% of book value, State Street Boston Corp. at 248%. and Banc One Corp. at 233%.

The bank's very high valuation is "an anomaly in the industry, though firmly deserved" given a 15-year compound growth rate in earnings of 15%, banking analysts at Goldman, Sachs & Co. noted recently.

During the first quarter, Fifth Third ranked second in return on assets, at 1.74%, among banks with assets from $10 billion to $20 billion, according to a survey by American Banker.

Second-Quarter Forecast

Mr. Roth said she anticipates earnings of 78 cents to 80 cents per share when second-quarter earnings are unveiled next month. The consensus estimate is for second-quarter earnings of 75 cents.

"Earning asset growth, driven by robust net new loan growth, will fuel an estimated 14% year-over-year advance in net interest income," she said.

Record volume in May of over $300 million in net new loans, she said, reflects the suc cess of the company's annual "Great Car Loan Sale."

Meanwhile, data processing revenues will probably grow 12.5% and service charges advance 10%, year over year, Ms. Roth said. At the same time, Fifth Third's "stellar cost-control ratio" is expected to remain below 50%.

Bank Stocks Slip

Major bank stocks were mostly lower Wednesday amid general weakness in the stock market.

In late trading, Barnett Banks Inc. was down $1 to $46.75; BankAmerica Corp. lost 50 cents to $44.25; NationsBank Corp. slipped 62.5 cents to $46; and Wells Fargo & Co. was off $1.25 to $98.875.

Bankers Trust New York Corp., which posted a 78-cent-a-share dividend, unchanged from the previous quarter, slipped $1 to $69.50. Citicorp fell 25 cents to $27.375.

Among the few gainers, Boatmen's Bancshares Inc. rose $1 to $59, NBD Bancorp was up 50 cents to $31.625, and Keycorp gained 25 cents to $40.

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