First Interstate Bancorp got a "buy" recommendation Tuesday from George M. Salem of Prudential Securities, who said the Los Angeles bank belongs in the "upper tier" of bank stocks.

But the analyst emphasized that his upgrade, from a "neutral" rating, "does not imply any improvement or turning point in the California economy."

First Interstate shares were off 62.5 cents to $62.625 in late trading on Tuesday in a generally weak stock market.

The stock, which is up 33% this year, lost momentum in recent weeks after hitting a 1993 peak of $65.25 on July 27.

But Mr. Salem thinks the stock can move to $77 a share in 12 to 18 months because of improved prospects for earnings growth.

Earnings Estimate Raised

The analyst raised his 1993 earnings estimate for First Interstate to $6.45 per share from $6.20 previously and up 43% from the $4.50 estimate at the beginning of this year.

"Despite what the stock has done this year, the earnings are still growing faster than the share price," he noted.

The analyst expects earnings of $1.70 for the third quarter, which would be 107% above the 82 cents earned last year. Wall Street analysts generally are expecting quarterly earnings of $1.55 per share when results are unveiled next month.

Mr. Salem expects the bank to earn $7.40 per share next year. He pointed out that the stock now trades at 8.5 times the 1994 estimate, in contrast to an average price of 10 times 1994 earnings for other regional banks.

Dividend Expected to Rise

He also expects a hike in the First Interstate common stock dividend in the fourth quarter this year or first quarter of 1994.

That would be the second increase in a year. Last April, the quarterly payout was raised to 40 cents per share from 30 cents. Mr. Salem thinks it may be advanced to 48 cents.

The analyst said First Interstate "belongs in the top quartile of bank financial management." It has done "an excellent job of reducing the loan risks and building large loss reserves in the event that California's downturn produces unexpected surprises," he said.

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