After a sharp run-up Wednesday, Marshall & Ilsley Corp.'s share price fell back Thursday when a rumored takeover bid failed to emerge. Some saw the retreat as a new buying opportunity.

"I would tell people you don't have to buy [Marshall & Ilsley] as a takeover play - you can buy it purely on the fundamentals," said Salomon Brothers analyst Richard Strauss.

Indeed, the Milwaukee-based company is one of the brightest stars in the midwestern banking firmament. Given its appeal, Marshall & Ilsley's stock often trades on takeover speculation.

That's what happened Wednesday, when the stock shot up $3 to a new 52-week high of $61.75 a share on a rumor that Harris Bankcorp, a Chicago-based subsidiary of Bank of Montreal, was mulling a bid. On Thursday, the stock promptly retreated, closing at $60.75 a share, down $1.

At that level, Marshall & Ilsley is trading at about 12 times Mr. Strauss' 1992 earnings estimate of $5.10 a share. That represents a slight discount to other regionals followed by the Salomon Brothers analyst.

But he and other analysts agree that Marshall & Ilsley deserves to trade at a premium, given the twin strengths of its core banking franchise and data-processing subsidiary, M&I Data Services Inc.

"This is literally one of the most profitable banks in the country," said Mr. Strauss, who thinks the stock should be trading at $70 to $75 a share based on the fundamentals alone.

The company's first-quarter return on assets was 1.55% - far above the industry average.

Nonperformers Barely Visible

That's because Marshall & Ilsley largely avoided the credit woes that have plagued much of the banking industry.

As a result, its ratio of non-performing loans to total loans was a scant 1.18% at the end of the first quarter, while its loan-loss reserve amounted to 134% of nonperforming loans.

"The numbers are terrific," said Denis Laplante of Fox-Pitt Kelton Inc.

Marshall & Ilsley stumbled only once, with the out-of-state acquisition of Thunderbird Bank in Arizona. But Thunderbird's problem loans have since been cleaned up, said Michael Milunovich at Robert W. Baird & Co.

In addition to its highly profitable banking franchise, Marshall & Ilsley's data-processing business is generating revenue growth of over 20% a year.

If the company ever decided to spin off the data-processing operation, the unit would probably trade at an earnings multiple of 18 to 20, Mr. Milunovich said.

Analysts agreed that Marshall & Ilsley is an alluring acquisition target.

"The question is: Can anyone afford to buy these guys?" said Mr. Laplante at Fox-Pitt Kelton.

Marshall & Ilsley wants to remain independent, and a hostile takeover would be very expensive.

There has also been ongoing speculation about an in-market merger of equals with Firstar Corp., also based in Milwaukee.

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