PHH efforts pay off: stock climbs


They told you so.

After years of complaining that PHH Corp. stock was being unfairly maligned by investors, the executives at the Hunt Valley-based company think, finally, their message has begun to sink in.

PHH stock, which had been riding between $35 and $38 a share since last June, took off three months ago and ascended to beyond $44 this week, its highest level in 18 months.

The stock closed at $44.125 yesterday, down 25 cents.

"We're delighted with the performance" of the stock over the past three months, said Roy Meierhenry, PHH's chief financial officer.

Mr. Meierhenry attributed the rise to a generally bullish stock market, PHH's earnings growth and investors' "growing recognition of PHH as a good service company."

For years, Mr. Meierhenry and other PHH executives have been trying to persuade investors that the company, which manages corporate fleets, helps move executives and owns the nation's 20th largest mortgage lender, shouldn't be judged as a financial company.

Investors usually expect to pay about nine times per-share earnings for financial companies, while shares of service and manufacturing companies go for about 12 to 13 times earnings.

Since analysts expect PHH to earn $4.59 a share in the 1996 fiscal year ending April 30, a change in how investors classify the company could mean the difference between a stock price centering around $41 a share and one centering around $55.

In explaining the company's unique position at a meeting of local stock analysts in February, Robert D. Kunisch, PHH's board chairman, insisted that the company should not be viewed as solely the result of volatile interest rates.

The company's three different divisions should be viewed as an advantage, he said. "We have a nicely balanced portfolio. Our various business segments rise and fall at different times," thus guaranteeing steady sales and income, he said.

And depending upon the interest rate cycle, the US Mortgage Corp. subsidiary has contributed much or little to the corporation's earnings.

In 1992, for example, the division kicked in about 20 percent of PHH's operating earnings. But in 1994, during the height of the refinancing boom, the division contributed nearly 40 percent of the company's operating profit.

The change in perception "is coming slowly," Mr. Meierhenry said. So slowly, in fact, that he believes the stock's recent 26 percent climb is just the beginning.

"I still think we are trading at a rather severe discount," compared with other service companies, he said.

Many Wall Street analysts agree, and the company has received some ringing endorsements from investment houses ranging from Goldman Sachs to Alex. Brown.

But even some of the company's biggest cheerleaders said the recent rise didn't mean PHH had solved its perception problem.

Alex Hart, an analyst for Ferris, Baker Watts Inc. in Baltimore, who recommends his clients buy PHH stock, said he believes the stock should trade in the 50s.

The company's attempt to change investors' perception hasn't been the key to the recent rise, he said. Instead, he believes

investors have started returning to the company now that PHH has stemmed a decline in its revenues.

In its latest quarter, which ended April 30, PHH's profits rose 14 percent to $20.8 million, as its revenues inched up 2 percent to $546 million.

Mr. Hart is still waiting for investors to "stop being attracted to the mortgage division like a moth to the light" and start paying attention to PHH's profitable fleet services and corporate relocation operations.

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