Stocks: Wells, City National Win Thumbs-Ups from Wall St.

Two influential analysts Tuesday urged investors to head West-to California and the stocks of Wells Fargo & Co. and City National Corp.

Wells Fargo, based in San Francisco, "will see significant cash earnings growth," said Lehman Brothers Inc. analyst Bruce W. Harting, who resumed his coverage with an "outperform" rating.

City National, headquartered in Beverly Hills, has developed a credible "model for success," said Goldman, Sachs & Co. analyst Robert B. Albertson, who placed the stock on his "recommended" list.

The praise punctuated a relatively quiet day of trading as shares inched upwards after Monday's run. The Standard & Poor's bank index rose 1.76% and the Dow Jones industrial average 0.65%. The Nasdaq bank index increased by 0.44% and the S&P 500 0.47%, finishing over 1,000 for a second straight day.

Wells Fargo and City National are among the banking companies best positioned to benefit from California's revived and expanding economy, the analysts said.

Wells Fargo, which rose $4.125, to $321.625, on Tuesday, is doing a convincing job of putting behind its troubles from 1996's purchase of First Interstate Corp., Mr. Albertson said.

With that assessment he joined a small but growing group of analysts who are reevaluating Wells Fargo and finding reasons to restore or reiterate recommendations. For instance, Carla D'Arista of Friedman Billings Ramsey & Co. repeated an "accumulate" rating on Tuesday.

Wells Fargo learned some costly lessons from the First Interstate deal, especially on the retail side, the analysts said.

But now the $97.5 billion-asset company "will have ample opportunity to expand market share in its traditional areas of expertise," like low cost distribution, real estate, and private banking, Mr. Albertson said.

Wells Fargo stock will also benefit from share buybacks and the company's ability to streamline costs and improve operating efficiencies, Mr. Harting said.

City National also earned high marks. The company, whose shares rose $2.0625, to $36.125, "operates in a trophy marketplace within a trophy state," Mr. Albertson said.

City National executives hold a substantial ownership stake, and their commitment has helped build up small-business and consumer operations, Mr. Albertson said. The company has also restructured its balance sheet to reduce real estate and other risks.

City National is appealing as a stand-alone operation and could ultimately serve as "an extremely attractive vehicle" for a bank looking to enter California, Mr. Albertson said.

Among the day's other gainers, Mercantile rose 37.5 cents, to $35.125, on a double dose of merger activity. The St. Louis banking company on Tuesday completed its acquisition of Horizon Bancorp in Arkansas and on Monday announced plans to buy First Bank of Illinois Co.

State Street Corp. gained 62.5 cents, to $58.875, despite a downgrade to "market perform" from "attractive" by John Adams of Adams, Harkness & Hill.

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