Smith Barney analyst Thomas O'Donnell Tuesday raised his rating on Fannie Mae stock, citing the mortgage agency's July operating results.

Fannie Mae, known formally as the Federal National Mortgage Association, announced Monday that its net mortgage portfolio grew in the month at an annual rate of 17.4%, Mr. O'Donnell noted.

July growth in mortgage-backed securities - 14% for outstandings and 10% net - was a "pleasant surprise," he added.

Mr. O'Donnell raised his rating on Fannie Mae stock to "buy" from "outperform" and lowered his risk rating on the stock to medium from high.

"We believe the longer-term fundamentals have rarely looked better for Fannie Mae, and the stock should remain a core holding in financial services portfolios," Mr. O'Donnell said. He pointed to Fannie Mae's average net interest margin of 116 basis points, up 3 basis points from June.

In trading Tuesday, Fannie Mae stock rose $1 to close at $93.50.

Unlike other analysts, who have recently suggested the net interest margin had reached a plateau, Mr. O'Donnell said he expects the margin to continue to widen.

"Some people are focusing on new debt as opposed to overall debt costs," he said.

He pointed out that Fannie Mae is prefunding debt purchases at a relatively cheap rate in the capital markets right now.

With more than $8 billion in debt maturing in the second half of 1995, he said Fannie Mae could lower its costs further.

Mr. O'Donnell said that trading risk represents the biggest threat to the stock in the short term, even though the shares have recently fallen to approximately $92 from the all-time high of more than $100 in early June.

"There is always trading risk with the stock," said Mr. O'Donnell. "The stock sometimes trades adrift of its fundamentals."

Fannie's stock often trades according to the direction of the economy rather than the particulars of the stock, said analysts.

Institutional investors view Fannie as a classic growth stock, said PaineWebber analyst Gary Gordon. That makes Fannie attractive during a weakening economy when other corporate stocks are off, but makes it look "ho-hum" as the economy reignites.

Another major risk for Fannie's stock, said Mr. O'Donnell, involves interest rates.

Any decline in stock price, however, presents a buying opportunity, said Mr. O'Donnell.

Separately, Salomon Brothers analyst Bruce Harting raised his ratings on Coast Savings Financial to "buy" from "hold," on an improved earnings outlook.

Mr. Harting raised his earnings estimates for 1995 to $1.15 a share from $0.90, and for 1996 to $2.45 from $2.

Mr. Harting said he expects Coast's net interest margin to rise to an average of 2.60% in 1996, which together with lower loan loss provisions should boost earnings to shareholders.

The thrift also stands to gain a $9 per share after tax, Mr. Harting estimated, if it wins a lawsuit challenging government accounting for its acquisitions of failed thrifts. Many are now predicting that thrifts can win similar suits, which focus on favorable amortization tables for goodwill that were granted in the 1980s but later overturned by Congress.

However, Mr. Harting does not recommend Coast as a takeover candidate. But he does say that merger activity within the state could drive the company's valuation higher.

If the board agrees to a sale, Mr. Harting added, Coast could command a premium of as much as 70% over today's price.

In trading Tuesday, Coast stock fell 12.5 cents to close at $22.75.

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