HDR Research Note

HPSC Inc. (HDR)
By: Richard W. West, CFA

HPSC Announces 36% Increase In New Financing For July

Expects To Meet Or Beat Street EPS Estimates For 3rd Quarter

Strong Buy Recommendation Reiterated

HPSC (AMEX: HDR) announced on August 21st that it had set a record for new financing contract originations (excluding American Commercial Finance Corporation) for the month of July. In July, the Company's new business originations increased 36% to $28.2 million versus $20.7 million for July 2001. The Company further indicated that EPS should "?meet or exceed analyst's estimates for the third quarter."

Our estimated Q3 net income is $1,045,000, with EPS basic of $0.26 and diluted EPS $0.24. HPSC continues, we believe, on its way to a record year of net income. For 2002, we are maintaining our diluted EPS estimate of $0.93 - $0.94 (adjusted for restated earnings for the first six months of 2002). At its current price, the stock sells at an 8.9x P/E ratio. Considering HPSC's current and future growth prospects, and the fact that the stock has pulled back approximately 16% from its recent high of $10.15 on June 18, 2002, the stock has overly discounted the recent defalcation event (see research note dated 8/19/02) and affords investors an excellent buying opportunity. We currently are in the process of preparing a full research update and will be reviewing our estimates for this fiscal year and presenting estimates for the year ended 12/31/03.

We reiterate our Strong Buy recommendation and our price target over the next 12 to 18 months remains at $14.00 - $16.00 a share. This would represent a 77% increase over 12 months from its current $8.45 level.

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 $25,000 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.