NationsBank Corp.'s share price jumped $1.25 to close at $49.25 in heavy trading Thursday, as investors reacted to the banking company's plans to buy back up to 20 million common shares, or 7.2% of the 276 million shares outstanding.
At least one analyst raised his estimate of NationsBank's earnings per share for 1995, and others are likely to follow.
The share repurchase program was announced late Wednesday, after the market closed.
NationsBank's share price rose quickly in early trading Thursday and remained strong throughout the session. it was one of only a handful of bank issues that ended the day in positive territory.
Stock prices in general fell in sympathy with bonds. The Dow Jones industrial average fell 23.55 points to 3,854.63.
Fresh inflation fears apparently were kindled Thursday by new economic data indicating that the economy is picking up steam.
The reports gave investors more reason to fear a further credit tightening by the Federal Reserve, though the policymaking Federal Open Market Committee declined to do so at its meeting on Tuesday.
The fear of further rate hikes has taken a toll on bank stocks.
"For the month of September, I think bank stocks had one good day," said Prudential Securities analyst George Salem.
NationsBank's share has taken a particular beating. Even after Thursday's run-up, the stock is still off a whopping 11.7% from its closing price of $55.75 on Aug. 31.
One reason for the thrashing is the apparent concern that NationsBank might be tempted to make dilutive acquisitions as a result of the passage this month of interstate banking, which was championed by NationsBank chairman Hugh McColl.
NationsBank is also reportedly interested in buying the finance arm of ITT Corp., a move that would be consistent with the company's strategy of building up its nonbank finance operations. NationsBank has declined to comment.
Judah Kraushaar, a banking analyst at Merrill Lynch & Co., downplayed concerns about dilutive acquisitions by NationsBank.
"My sense is that management is very cognizant of not weakening its reputation as a value-added deal doer," Mr. Kraushaar said.
While analysts cheered the announcement of the stock repurchase program, the timing of the buybacks is unclear.
NationsBank said only that the purchases would be made "from time to time" in the open market or in private transactions.
Still, the news was enough to prompt Kidder Peabody analyst George Bicher to raise his 1995 earnings estimate to $7.10 a share from $6.95, and elevate his rating on the stock to a "strong buy" from "outperform." His 1994 earnings estimate of $6.15 a share was not changed.
Mr. Kraushaar said he will wait to see how NationsBank paces the buybacks, but added that there's a good change he will raise his estimates, too.
For now, the estimates stand at $6.25 a share for 1994 and $6.85 for 1995.
Prudential's Mr. Salem said he'll wait to see third-quarter earnings before making any changes in his estimates of $630 for 1994 and $7.15 for 1995.
