Morgan Stanley & Co. upgraded Fleet Financial Group on Tuesday, citing the purchase of Shawmut National Corp. and the deal to buy National Westminster Corp.
Analyst Dennis F. Shea upgraded the Providence, R.I., bank to "outperform" from "neutral."
"The stock was too inexpensive to ignore," he said.
Shares closed at $41, up 75 cents on a day when the S&P bank index rose 0.23% and the S&P 500 gained 0.45%.
Mr. Shea said that if shares were to weaken to $36, Morgan Stanley would upgrade them to a "strong buy."
The Shawmut acquisition, completed last November, is expected to bring an annual cost savings close to $400,000. The coming Natwest acquisition could bring $200 million more of projected cost savings, Mr. Shea said.
The analyst said Fleet's earnings per share will increase to $5.20 in 1997. He maintained his $4 estimate for this year.
In addition to boosting the stock, the upgrade seemed to offset two other events that could have caused Fleet shares to slide.
The U.S. Labor Department has filed a complaint against Fleet for an alleged wrongful firing; and the bank issued $175 million of perpetual cumulative preferred shares priced at $50 a share.
The preferred shares - which can weigh down the balance sheet and cause the bank's stock price to slip - were issued to fund the acquisition of Natwest, said Mr. Shea.
The Labor Department complaint "is a hangover from a problem before," he said, adding: "It will not be material to the stock going forward."
Mr. Shea acknowledged that Fleet's stock has lagged behind other banks' shares, but argued that it's time to "get in front of the stock price now" because the earnings will be turning up in the third quarter.
Fleet's first and second quarters may appear deceptively sluggish, Mr. Shea said, because the bank had to reduce its balance sheet by $10 billion to make way for the Natwest acquisition.
Analyst Ronald Mandle of Sanford C. Bernstein & Co. upgraded Fleet's stock to "buy" earlier this year.
In the first quarter Fleet will earn about 85 cents a share, Mr. Mandle said. "I expect them to earn $5 in 1997. The earning power will improve significantly."
Separately, Advanta Corp.'s stock broke past its 52-week high after several small surges in February and October.
Advanta's class A shares closed at $52.875, up $3.75. The class B shares closed at $48.375, up $2.625. Trading was unusually heavy.
Janet Point, investor relations representative at the Horsham, Pa., credit card specialist attributed the action to arbitrage of the bid-ask spread.
Analyst Joseph LaManna at William Blair & Co. suggested that the stock rose because the company has been undervalued. In October the stock broke its 52-week high with by $1, hitting the mid to upper $40's, he said. In February it broke into new territory again, reaching $48.
"The company has exceeded expectations," Mr. LaManna said.
