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NCO May Be Going After Tax Deadbeats

If the Internal Revenue Service decides to outsource the collection of more than $200 billion in back taxes, watch the shares of NCO Group (NCOG) rocket. NCO is the world's largest accounts-receivable management company, so it is likely to get a big slice of the IRS business--should Congress O.K. the plan. If it does, the IRS outsourcing could start by 2003, figures Brandt Sakakeeny of Deutsche Bank Securities, which owns 1% of the stock.

It's too early to know the potential impact on NCO, he says. But to Gary Steiner of Awad Asset Management, the shares, which have tumbled--from 29 in March to 11.92 on Oct. 23, are "very undervalued--even without the IRS project." Awad has accumulated a 5.1% stake. NCO is trading at seven times Steiner's 2002 earnings estimate of 1.50 a share. He thinks it should trade at 15 times, or 22 a share. He expects earnings of 1.79 in 2003. NCO gets 25 cents to 28 cents of every $1 it collects.

The business has continued to grow, says Steiner, but the recession caused NCO to miss forecasts as debtors found it difficult to repay their loans. "The drop presents a buying opportunity," he says. By Gene G. Marcial

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