HDR Research Note

FUNDAMENTALS CRY OUT FOR MARKET RECOGNITION

STRONG BUY RECOMMENDATION REITERATED

The common stock of HPSC, Inc. currently offers both value investors and growth investors a major opportunity for capital appreciation. For growth investors HPSC has evidenced a solid 47% growth rate in earnings over the past five years. For value investors, the common stock sells at a 37% discount from the book value (adjusted for the impact for FASB 133) of $10.75.

After HDR reported results for nine months ended September 30, 2001 at $0.54 EPS we raised our estimated fully diluted for the entire 2001 year to a range of $0.81 to $0.84, with a mid-point estimate of $0.825. We believe the Company is on track to meet this estimate. Based on this 2001 EPS estimate, the current price earnings ratio is 8.76x. With our estimate for the year 2002 EPS of $0.97, the P/E is 7.2x. Put these two together, value plus growth, HPSC represents a compelling STRONG BUY. Further, not only is HPSC a buy on its own merit; when comparing its fundamentals to two peer companies, Financial Federal and DVI, Inc., HPSC is relatively undervalued on a price earnings basis, and price to book value vis-à-vis two of its peer companies.

March 12, 2002 HDR - VS. Peer Companies Comparison
		Financial
Company		HPSC, Inc.	Federal	DVI, Inc.
Symbol		HDR	FIF	DVI, Inc.
Year End		Dec. 31	Jul-31	Jul-31
Recent Price 3/12/02		$ 6.95	$ 30.70	$ 17.80
Price 11/02/01(date of HDR Buy Rec.)		$ 7.24	$ 25.45	$ 15.80
Per Cent change since 11/02/01		-4.01%	20.63%	12.66%
Shares outs. Mil.		4.154	16.6	14.3
Market Cap Mil.		$ 28.9	$ 509.6	$ 205.0
Book Value/Share		$ 10.75	$ 13.62	$ 16.15
Price/BV		64.7%	225.4%	110.2%
Net Revs. Mil. Ttm	*	$ 55.90	$ 138.30	$ 131.00
Market Cap/Net Revenues	*	52%	27%	64%
EPS Growth FY 1995 to FY 2000		47%	23%	18%
EPS Growth FY 1999 to FY 2000	*	22%	18%	17%
EPS (Ttm) Adjusted	*	$ 0.81	$ 1.89	$ 1.51
P/E		8.6	16.2	11.8
Est. 2001 EPS		$ 0.825	$ 2.01 (a)	$ 1.65 (a)
P/E on Est.2001 EPS		8.4	15.3	10.8
Est. 2002 EPS		$ 0.97	$ 2.28 (b)	$ 1.84 (b)
P/E on Est. 2002 EPS		7.2	13.5	9.7
Ttm=Trailing Twelve Months
* Adjusted
(a) FIF & DVI FY 7/31/02
(b) FIF & DVI FY7/31/03

Compared to Financial Federal (NYSE: FIF) and DVI (NYSE: DVI), HPSC sells at a relatively low price earnings ratio. The P/E for HPSC is 8.6x based on trailing twelve months EPS, and 8.4x based on our 2001 EPS estimate of $0.825. For Financial Federal, based on trailing twelve months EPS, the P/E is 16.2x, and 15.3x based on Wall Street consensus estimates for FY7/31/02. DVI, based on trailing twelve months EPS, sells at a 11.8x P/E ratio and 10.8x based on the Wall Street consensus estimated EPS for its FY ended 7/31/02. On a price to book value (BV) ratio, HPSC sells at 64.7% of book, while FIF sells at 225.4% and DVI at 110.2% of book value respectively. HPSC?s EPS growth rate from 1995 to 2000 was 47% while FIF?s EPS growth rate from 1995 to 2000 was 23% and DVI?s growth rate was 67%. Most recently, HPSC?s EPS growth rate from FY1999 to FY2000 was 22% while FIF?s growth rate from FY1999 to FY2000 was 18% and DVI?s growth rate was 17% during the same period.

There is the perception on the street that interest rates have bottomed out, and earnings for these companies have possibly peaked. This is not the case for HPSC. The company completed a major financing in December of 2000, raising $527 million, equipment receivables backed securitization program that enabled HPSC to originate over $250 million in finance contracts that resulted in most attractive spreads for the Company.

We originally recommended HPSC on December 17, 2001 at a price of $7.85. At the current price level, we believe the stock affords investors a major buying opportunity. Our price target over the next twelve to eighteen months remains at $15.00 a share. While the stock has been relatively quiet in day-to-day trading, we believe any buying interest will quickly rally the stock and we reiterate our STRONG BUY recommendation.

J.M.Dutton & Associates, LLC. John M. Dutton, President and Supervisory Analyst, 1129 Manning Drive, Suite 310, El Dorado Hills, CA 95762 Phone (916) 941-4985, Fax (978) 418-6422 Email: [email protected] Web site: www.JMDutton.com

Information, opinions or recommendations contained in this research note are submitted solely for advisory and information purposes. The information used and statements of fact made have been obtained from sources considered reliable but we neither guarantee nor represent the completeness or accuracy. Such information and the opinions expressed are subject to change without notice. This research note is not intended as an offering or a solicitation of an offer to buy or sell the securities mentioned or discussed. Neither the Firm, its principals, nor the assigned analysts own or trade shares of any company covered. The Firm does not accept any equity compensation. Anyone may enroll a company for research coverage, which costs US $22,000 prepaid for one-year. Reports are performed on behalf of the public, and are not a service to any company. The analysts are responsible only to the public, and are paid in advance to eliminate pecuniary interests and insure independence. Please read full disclosure and other reports and notes on the Company at www.JMDutton.com.