Wells Fargo & Co. shares gained on Monday after an analyst issued a "buy" rating on the stock based on stabilizing California real estate prices.

Wells Fargo was ahead $1.50 to $103.25 at 3 p.m. The shares are up 35% this year, placing them among the best-performing banks on the New York Stock Exchange.

Appraisals of West Coast commercial property, uniformly down six months ago, "are now mixed, with some up and others down or flat, indicating the market is starting to bottom." said Lawrence W. Cohn of PaineWebber Inc.

PaineWebber on Monday raised its rating of Wells to "buy" from "attractive." Mr. Cohn thinks the stock could hit $150 in 12 to 18 months.

The brighter real estate outlook is important to Wells, Mr. Cohn said, since the San Francisco bank may be able to remove loans on the properties from nonperforming status. This would ease the need for large quarterly provisions against loan losses.

"They have many such loans that are current as to interest and principal but have been put on nonperforming status because appraised values were below the outstanding loan amounts," Mr. Cohn said.

Big in Real Estate Loans

Wells has traditionally been among the biggest lenders on commercial real estate in California. The resulting vulnerability of its earnings during the state's deep recession has worried and divided bank analysts.

George M. Salem of Prudential Securities Inc. last month dropped coverage on Wells, saying its stock was "grossly overvalued" in view of a weak state economy he believes is unlikely to turn around soon.

Campbell K. Cheney of Sutro & Co. said employment and consumer confidence data, while a bit less negative recently, "show that California is suffering from a deep and seemingly never-ending recession."

Legendary Cost Control

But a number of other analysts cite Wells' strong management and legendary cost control as factors, along with falling loss-reserve expenses, that will help boast earnings even without full economic recovery.

Strong management is "the single most important factor for success at banking companies," said Thomas K. Brown of Donaldson, Lufkin & Jenrette Securities Corp., who last month added the stock to his recommended list.

Mr. Cohn, who visited Wells management last week, said he was also impressed that the bank is emphasizing lines of business to replace revenues from commercial property lending, which may be weak for years.

Attention on Smaller Loans

The bank is focusing "on the very small end" of business loans - those of $500, under, Mr. Cohn said. "They have less than 5% of the market in these loans in California, and they have a 15% to 90% market share otherwise, so they have room to grow in this area."

The bank is emphasizing home mortgage lending. But Mr. Cohn said it remains to be seen if the bank mounts a sustained effort in this area after previous withdrawals.

Mr. Cohn estimated Wells, which earned $4.44 last year, could have net income of $7.70 this year and $10.80 next year.

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