Shares of Compass Bancshares rose slightly Thursday after an upgrade from Dean Witter Reynolds, which said that the stock had fallen to a bargain price and that the Birmingham, Ala., company could soon become a takeover target.

Dean Witter analyst Anthony R. Davis raised the firm's rating on the stock to "accumulate" from "neutral," boosting the shares 25 cents, to $32.375, a gain of 0.78%. Compass outperformed the Nasdaq bank index, which gained 0.61%.

Mr. Davis said investor anxiety over higher interest rates caused a 7% selloff in Compass's stock since May. The bank's share price "has been quite discounted," he said.

Mr. Davis's upgrade came just three days after the bank holding company completed its acquisition of Palestine, Tex.-based Royall Financial Corp. and its subsidiary, Royall National Bank of Palestine.

Compass, which has acquired an attractive franchise in Texas and Florida, could attract a suitor itself, and that could drive the stock up to about $40 a share, Mr. Davis said.

Mr Davis estimates Compass could earn $3.25 a share this year and $3.60 a share in 1997.

Analyst John Moore of Morgan Keegan & Co. in Memphis said he has an "accumulate " rating on Compass because of its successful foray into the Texas market and its ability to raise its return on equity by two percentage points in the past two years. Compass currently returns between 17% and 18% on equity.

"The company's acquisition strategies have allowed good earnings," said Mr. Moore. "In the South, the Alabama market is not a strong growing market, but the Texas market is one of the fastest growing markets in the country."

Although Mr. Moore is dubious about a takeover anytime soon, he said that the former chairman, Harry Brock, once again is trying to pitch a deal to First Union Corp.

Mr. Moore pointed out that Mr. Brock, who owns 800,000 shares of Compass's stock, attempted to sell Compass to First Union a year and a half ago when he was still a director, but was overruled by his fellow board members. Mr. Brock was not available to comment on whether he is still pursuing a sale.

"Most of the banks that have been purchased are generally poor-earning banks," said Mr. Moore. "I told Compass management that the way to stay independent is to forget about the takeover rumors and go out there and earn some money and make the shareholder happy."

"The stock," he said. "is a good investment."

Separately, Josephthal, Lyon & Ross Inc. reduced its 1996 earnings estimate for Fleet Financial Group to $4-to-$4.05 a share, from $4.18. At the same time, Josephthal is raising its 1997 earnings-per-share estimate to $5.15 to $5.20, from $5.

Analyst Frank Barkocy said the reduction is due to the "modest negative impact" of Fleet's second-quarter earnings.

He has set a 12-month price target of $55. Fleet closed at $40.875, down 37.5 cents.

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