Inside Wall Street
THIS BARE-BONES BROKER LOOKS PRETTY JUICY
Ever heard of Waterhouse Investors Services? If you haven't, you're not alone. Although its shares trade on the Big Board, Waterhouse is little-known on the Street, and institutional ownership of the stock is almost nil. But that's just dandy with money manager Bill Astrop, whose forte is finding overlooked small- to mid-cap stocks with strong, predictable growth rates.
Astrop has been accumulating shares mainly because he likes Waterhouse's niche operation: the no-frills, deep-discount brokerage business. The commission fees are 70% below those of Merrill Lynch and 30% lower than those of discounters Charles Schwab or Quick & Reilly, says Astrop, though the other brokers offer far more services than Waterhouse does. Astrop believes Waterhouse's only real competitor in the deep-discount business is a privately owned West Coast company called Pacific Securities.
"Waterhouse operates with a linoleum-floor mentality--they don't have secretaries, and they don't consider themselves investment bankers or anything glamorous," explains Astrop. Most of the company's more than 300 employees are young men and women "order-takers" who just take buy and sell orders, mainly by phone. Waterhouse currently has about 400,000 clients, mostly individual investors who manage their own portfolios.
BRANCHING OUT. Waterhouse plans to add 15 outlets by yearend in such cities as Honolulu, Palm Beach, and Oklahoma City. It currently has 40 branches in major cities in 24 states.
For its most recent quarter, which ended Feb. 26, the company reported a 40% jump in earnings, to $4.2 million, or 70 a share (adjusted for a stock split in March), vs. 50 a year earlier. Revenues jumped 35%, to $22.3 million.
Astrop says even if the overall stock market simply remains stable, Waterhouse should earn $2.25 a share in the year ending Aug. 31 and $3.50 next year, up from 1992's $1.40. He figures revenues should advance to $100 million by next year, up from an estimated $75 million for this year and $55 million last year.
The stock is trading at a price-earnings ratio of 10, vs. Schwab's 14, notes Astrop. Chairman and CEO Lawrence Waterhouse owns some 25% of the stock, which has climbed from 10 in October to as high as 23 in April. Now trading at 18 5/8, the stock "is the easiest double that I see" over the next 12 to 18 months, says Astrop.GENE G. MARCIAL