PNC Stock Upgraded by Merrill; Price Jump Predicted

Shares of PNC Bank Corp. should hit $59 within 12 months as the company culls earnings from faster-growing, high-return businesses, an analyst at Merrill Lynch & Co. says.

Asset management and mutual fund processing may expand annually by at least 20% in 1999 and 2000, compared with 18% in 1998, Sandra Flannigan said.

Its exit from the credit card business - a sale is expected to close this quarter - would free up about $5 billion in capital, which can either be redeployed into expanding high-return businesses or used for share buybacks, the analyst said.

Ms. Flannigan raised her rating on the shares to "accumulate" from "neutral" and increased her 1999 earnings-per-share estimate by 5 cents, to $3.85. PNC should earn $4.30 in 2000, she said.

The stock closed Tuesday at $49.75, up $1.125.

PNC has been enhancing its revenue mix, with core fees accounting for about 50% of revenue in 1999 and 52% in 2000, Ms. Flannigan said. By comparison, core fees were about 48% of revenue in last year's fourth quarter.

She said the stock's current price relative to her earnings-per-share estimate for 1999 is the second-lowest among Merrill Lynch's regional bank group.

She added that the stock has fallen back more than 25% from its 52-week high, compared with a median 15% pullback for the regional bank group.

For the day the Standard & Poor's bank index shed 0.17% while the Dow Jones industrial average was up 1.32%. The Nasdaq bank index rose 0.35% and the S&P 500 1.49%.

J.P. Morgan & Co. was unchanged at $104.25. KeyCorp rose 56.25 cents, to $31.375, and Mellon Bank Corp. $1.125, to $67.125

Among thrifts, Astoria Financial fell 93.75 cents, to $45.75; Dime Bancorp 68.75 cents, to $24.3125; and Washington Mutual 37.5 cents, to $41.

Shares of Wells Fargo & Co. fell 50 cents, to $35,9375. The San Francisco banking company "is my single favorite bank stock," said Sean Ryan, a banking analyst at Bear, Stearns & Co.

"The market is underestimating the consolidation risks for some of our recent megamergers. Wells Fargo is an example where they are being overestimated," Mr. Ryan said.

Norwest, which merged with Well Fargo late last year, "was very successful at merging nonbank businesses without putting a banking template on them," Mr. Ryan said.

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