Shares of Household International Inc. fell Monday after being downgraded by PaineWebber Group Inc. on the basis of their recent price increase.

PaineWebber analyst Gary Gordon reduced his investment rating on the stock of the consumer finance company, which is also a major credit card issuer, to "attractive" from "buy." Household was off 62.5 cents to $35.25.

Household has prompted divided opinions along Wall Street in a reflection of the general uncertainly among investors about the strength and direction of the nation's economy.

Household shares had only recently recovered from a 15% pullback along with other consumer finance-related stocks on worries that rising interest rates may dampen the economy and slow consumer borrowing.

Mr. Gordon could not be reached to elaborate on his action.

Smith Barney Likes It

The price retreat recently helped persuade another analyst, Kristina E. Andersson of Smith Barney Inc., to elevate the shares to a "buy" rating from "outperform."

Ms. Andersson said she acted on the basis of higher earnings estimates as well as the price decline. She has an intermediate price target of $43 to $45 on the stock.

The analyst noted that Household trades below the regional bank average at 8.1 times its estimated 1995 earnings of $4.20 per share. Banks' stocks trade at nine to ten times next year's earnings.

She also pointed out that Household's valuation is well below the level of pure credit card companies, who currently trade at an average of 14 times next year's anticipated earnings.

More Cards Than Big Banks

At yearend, Household Bank ranked fifth in credit card outstandings with over $8.8 billion, behind Chase Manhattan Bank and ahead of Bank of America, Bane One, and Bank of New York.

About 40% of Household's loan portfolio and operating net income is derived from credit cards. Just under half of that comes from its issuing the cobranded General Motors card.

Consumer finance activities contribute about 35% to operating earnings. Banking, mortgage banking, and insurance make up the rest.

Analysts think changes are underway for players in the credit card sector.

"A shakeout among credit card issuers will be accelerated by rising interest rates, but the industry will continue to grow faster than the economy," according to Mark Alpert of Alex Brown & Sons.

Companies with competitive advantages in structure and technology will rank as industry leaders, he said. Ms. Andersson said she felt the "information technology" that underpins Household's credit card operation "is among the best in the industry."

Earnings Reports Spark Uptick

Bank stocks were generally higher on Monday with second quarter earnings announcements helping kindle investors' interest.

"These stocks should not sell off during earnings season" this time, according to Thomas D. McCandless, regional banking analyst for PaineWebber.

NationsBank Corp. improved 62.5 cents to $55.125, J.P. Morgan & Co. rose 62.5 cents to $61.50, Bankers Trust New York Corp. gained $1.50 to $66.857 and Midlantic Corp. was up 87.5 cents to $30.375.

Among the few exceptions to the general uptrend was Chicago's Northern Trust Corp., which slipped 1.375 cents to $40.

Mr. McCandless said the stock price weakness of previous earnings periods will likely be avoided this time because of "a distinct shift in the mix of earnings growth to reflect more topline revenue growth."

In particular, net interest income should show impressive growth at many regional banks, he said.

In previous quarters, reduced costs and lower loan-loss provisions were the drivers of bank profits, but Mr. McCandless said the market "stopped paying, for this kind of earnings growth at about the end of the third quarter last year."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.