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Inside Wall Street
A BIT BANGED-UP-BUT RUNS GOOD
Used-car loans are a huge industry--about $175 billion--and growing. In the front ranks is AmeriCredit (ACF). This Fort Worth company buys auto-loan contracts and either services or sells them. Despite fluctuating interest rates and growing delinquencies overall, AmeriCredit has flourished.
AmeriCredit's Big Board-traded stock recently turned up on the buy list of Tim Evnin, who runs Excelsior Early Life Cycle fund, a U.S. Trust mutual fund that has risen an impressive 15.8% so far in 1996. Evnin believes that AmeriCredit stock, which has seesawed this year, has the potential for strong growth. To begin with, the company's accounting practices are scrupulously conservative: Loan-loss reserves are higher than the industry average. But--bucking the nationwide trend--delinquencies have been on the decline this year, falling to 3.2% in the quarter ending Mar. 31, down from 3.7% at yearend 1995. Analysts forecast earnings of 70 cents a share in the fiscal year ending June 30, and $1.10 or so in 1997, according to Zacks Investment Research.
AmeriCredit is achieving this growth without excessive leverage. As of Mar. 31, the company has $308 million in loans compared with $150 million in equity--a very low debt-to-equity ratio. "It means that they can double their loan portfolio without going out and getting more equity," says Evnin. Another advantage is the current merger activity, with auto finance specialists being bought up by banks in recent months. Even without a takeover, Evnin reckons the company's growth warrants a price in the low 20s--a 50% gain over the recent price of 14--in the next year or so.Return to top
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