09/02/96 BEST LITTLE S&L IN CALIFORNIA?

BEST LITTLE S&L IN CALIFORNIA?

California thrifts are hot properties. Passion for savings and loans has spread to California, and pros who had been ignoring the group are snapping up shares of the state's S&Ls.
An S&L that one New York investment house is accumulating: Downey Financial (DSL), whose shares have jumped to 25, up from 20 in less than a month. The reason? Buyout fever.
``We believe a long-term takeover wave of S&Ls is building,'' argues Thomas O'Donnell of Smith Barney. As California's economy firms up, notes O'Donnell, large S&Ls will be chasing small ones. Two recent takeovers: First Nationwide Bank agreed to buy California Federal, and Washington Mutual opted to acquire American Savings.
``This takeover wave should crest in two to three years,'' O'Donnell believes, culminating in out-of-state banks buying merged California S&Ls. ``Few will remain unaffected,'' he says.
Among the smaller outfits, Downey is an oft-mentioned target, he notes. ``It's a diversified thrift starting to rev up under talented management.''
One money manager argues that Downey, holding company for Downey Savings & Loan--with 53 branches and assets of $4.5 billion--has what big thrifts want: a high ratio of deposits to assets (it has nearly $4 billion in deposits), a turnaround in earnings, and a management team that has a fat stake: Chairman Maurice McAlister owns 20% of the stock. Other insiders own 6%.
The investment manager figures the stock should fetch 30 based on fundamentals alone. ``In a takeover, the stock is worth more--about 40,'' he says. This pro believes three major California S&Ls have expressed interest in Downey. CEO Steve Prough says ``We're taking advantage of our great market niche to become much bigger.'' There are no takeover talks going on, he said.
Some analysts like the stock even without the prospects of a takeover. Currently trading close to its book value of 23, Downey ``remains one of the most attractive and overlooked stocks among midsize California thrifts,'' says analyst Campbell Chaney of Rodman & Renshaw, a Chicago securities firm. Downey represents a ``solid value,'' whose earnings, he adds, are expected to continue to grow at a double-digit annual rate.
BY GENE G. MARCIAL