More than two decades of uninterrupted earnings growth and strong asset quality has made Fifth Third Bancorp one of the financial sector’s darlings.

On Thursday it got yet another favorable rating, as Sandler O’Neill & Partners initiated coverage for the $46 billion-asset Cincinnati company.

Analyst Kenneth F. Puglisi, a principal at Sandler, rated Fifth Third “outperform” despite a just average share of fee income, and its hefty multiple, currently 28.76 times earnings.

Fifth Third’s story has a lot of bright spots, wrote Mr. Pugilisi in his report. An unparalleled 27 years of consecutive earnings growth, which has translated into a 16.4% earnings per share increase over the past 10 years, 0.39% nonperforming assets to loans — which are expected to rise by 10 basis points this year — and a 40.6% efficiency ratio justify its higher valuation, he said.

Indeed Fifth Third has a much smaller ratio of nonperforming assets than peers like AmSouth Bancorp, BB&T Corp., and U.S. Bancorp, he wrote.

Last year Fifth Third reported profits of $236.4 million, up 18%, or $1.83 a share. Mr. Puglisi said he expects operating earnings to grow 30% this year and 19% in 2002. Old Kent Financial Corp. of Grand Rapids, Mich., which Fifth Third is buying, would add 9% to this year’s earnings-per-share growth even before any cost savings, he said. Mr. Puglisi said he expects first-quarter earnings per share to be 51 cents, up from 44 cents last year.

Fifth Third has a good business mix, Mr. Pugilisi said. About 51% of its revenues are drawn from the retail and small-business unit, while commercial banking brings in 27%. Investment banking and Midwest Payment Systems, an automated teller machine and electronic fund transaction processor, generate the rest.

Midwest “has grown its income at more than 30% since 1997, and income was up 34% last year, surpassing the earnings contribution from the bank’s investment advisory business for the first time,” Mr. Puglisi said. He expects processing fees to rise 27.5% this year as well as next year.

Mr. Puglisi is not the only analyst high on Fifth Third. Marni Pont O’Doherty of Keefe, Bruyette & Woods upgraded the stock on Monday to “outperform” from “market perform,” and Henry C. Dickson of Lehman Brothers and Michael Plodwick of UBS Warburg have it on “strong buy.”

Other analysts see it differently. Jon Balkind of Fox-Pitt, Kelton is maintaining a “hold” rating on Fifth Third, as is Susan Roth of Credit Suisse First Boston.

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