Inside Wall Street
A FACTOR TO BE RECKONED WITH
Beleaguered banks are driving borrowers away--right into the arms of Allstate Financial--no relation to Sears Roebuck's giant insurer. Allstate Financial, whose stock trades over the counter at 13 1/8, has doubled this year. But some savvy investors in small-company stocks think it has a lot more upside potential.
Allstate Financial is a factor--a company that buys another company's accounts receivable at a discount. The seller gets cash without having to wait to collect from a customer. The factor's profit is in the difference between the discounted cost of the receivables and what the factor can collect. Factors have long served companies that have a hard time getting bank loans.
Until recently, factors often lost their best--the most creditworthy--customers as they became bankable. But with the credit crunch, Allstate's customers are sticking around--and it shows. Jerry Levine of Palladin Research Associates figures the company will earn $1.20 a share in 1991--a 19% gain over 1990--and should post another 15%-to-20% gain in 1992.
Levine's estimate doesn't count Allstate's new unit, Lifetime Options, which buys the life-insurance policies of the terminally ill at a discount. "It's new, so we're taking it slow," says Lawrence Winkler, Allstate's secretary-treasurer. Still, he says Lifetime should provide "some earnings impact" in 1992. Money manager Donald Herman of William D. Witter estimates that every $20 million in policies Lifetime buys should yield $1 a share in profit. With that earnings potential, plus the factoring profits, it shouldn't be long before the stock doubles again.JEFFREY M. LADERMAN