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HPSC, Inc. (HDR) Initial Recommendation: STRONG BUY
HPSC, Inc. recently enrolled in the Dutton and Associates Research program. As we have proceeded with due diligence on HPSC, Inc. we are most impressed by its past growth in revenues and earnings, its well funded balance sheet, its continued growth in new financing contract originations, and its consistent credit quality in the portfolio. Therefore, at its current price, we are making our initial recommendation of a STRONG BUY at this time. The estimates/income model and complete rationale will be detailed in the initial Research Report that will be published by mid-November. This specialty financing company deserves consideration by value oriented and capital growth minded investors. HPSC is well financed; the Company has an excellent record of growth in revenues and earnings and is regarded as a leader in its niche market of providing leasing and financing opportunities to the medical and dental professions in all 50 states within the healthcare professional market. The stock is selling at approximately 76% of book value and 85% of cash and cash equivalents. We believe that the current market valuation of HPSC, Inc. does not reflect its excellent financial history, the value of its assets nor the potential growth in the coming years. The Strong Buy rating is based on the following: a) The stock of HPSC, Inc. is selling at a 34% discount from book value; b) HPSC earnings per share increased at an average annual growth rate of approximately 45% in the periods of FY1995 to FY2000 (adjusted); c) HPSC's gross owned and managed lease contracts and notes receivable continue to grow and are expected to carry on this trend in the coming years. d) HPSC is well financed; having completed a major and timely $527 million, equipment receivables backed securitization in late December 2000. This transaction helped to increase the net interest margin going forward and provided approximately $95.2 million for future commitments to the loan portfolio; and e) We believe that the trend in interest rates this year continues to favor HPSC's cost of borrowing and should benefit margin spreads in existing and new originations. The Company announced on October 31, 2001 that for the third quarter, it expects an increase of approximately 6.3% in net revenues to $13.6 million as compared to $12.8 million last year. Net income for the third quarter of 2001 is expected to increase approximately 16.2% to $1,000,000, as compared to $860,000 in the third quarter of 2000. Basic earnings per share for the third quarter of 2001 are expected to increase approximately 11.3% to $0.25 per share, compared to $0.22 in the same period last year. On a fully diluted basis, earnings per share are expected to increase approximately 15% to $0.23 for the third quarter of 2001, versus $0.20 in the prior year period, a 15% increase. Summary of our recomendation: We believe that HPSC, Inc. is an attractive investment for both value and growth oriented investors with minimal downside risk. Technically, the stock came down with the general market weakness from its 52 week high of $8.80 on June 1, 2001 to its recent low of $6.80 set on September 10, 2001. The stock has attractive fundamentals, strong technical action to support its current level, and is relatively under priced as compared to its peer companies, Financial Federal, Inc. (FFI- $25.83) and DVI, Inc.(DVI-$15.83). We give HPSC, Inc. our strongest rating of STRONG BUY. J.M.Dutton & Associates, LLC. John M. Dutton, President and Supervisory Analyst, 801 S. Figueroa, Suite 1120, Los Angeles, CA 90017 Phone (213) 929-2616, Fax (213) 896 0457 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. © Copyright, 2001, by J.M. Dutton & Associates, LLC. |