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Upgraded investment rating boosts USF&G; Alex. Brown cites better management at troubled insurer.


USF&G; Corp. has started to win over the investment analyst community as another brokerage house has upgraded its rating of the Baltimore insurance holding company's stock.

Alex. Brown & Sons Inc., citing management's "significant progress in restructuring this troubled insurer," raised its recommendation this month to "buy" from "hold" on the company's common stock and issued a "strong buy" rating on USF&G;'s cumulative convertible preferred stock series C.

Alex. Brown analyst Ellen Barzilai says her company has been working on the new rating for some time.

But other analysts say an April 8 meeting that USF&G; Chairman Norman P. Blake Jr. held with numerous analysts helped change some opinions of the company, which reported an operating profit of $4 million in the first quarter. The company lost 9 cents a share, however, after paying dividends on preferred stock.

"As Norm Blake's strategy has produced results, analysts who were predominantly in the sell mode have been coming around," says analyst Michael A. Lewis of Dean Witter Reynolds.

His company upgraded USF&G; to "neutral" from "sell" a year ago, and Mr. Lewis says he still is waiting to see whether prices in the property-casualty insurance industry will turn upward any time soon.

Alex. Brown cites four key elements that contributed to its new rating:

* An 18-month-old restructuring program that has raised equity, lowered debt, cut expenses, trimmed unprofitable product

lines and improved the parent corporation's cash flow by more than $400 million a year.

* Strong earnings potential. Alex. Brown predicts USF&G; earnings of $4 a share by 1995. The investment firm expects USF&G; to break even this year, followed by income of 50 cents a share in 1993 and $2.25 a share the next year.

* A stock valuation that foresees USF&G; selling for $24 to $28 a share by 1995. The preferred stock should sell for $100 to $116 a share, and its dividend represents an annual yield of 8.3 percent, Alex. Brown says.

* Management, whose "accomplishments to date have been impressive," according to an Alex. Brown report May 5.

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