What happened to John Alden Financial (JA) on Mar. 31 was a classic case of panic. Investors headed for the exits when the group-life and group-health insurer announced that it was restating fourth-quarter results and would miss the Street's first-quarter earnings forecast because of an unexpected jump in claims. In fact, the stock started to weaken the afternoon of Mar. 30, after John Alden officials called some analysts to inform them--in confidence--of the changes. The next day, the stock tumbled 38%, from 29 5/8 to 18 1/2. On Apr. 5, John Alden closed at 18 3/4.
But guess what: When there's a sale, there are buyers. And some of them were smart-money investors. "Talk about a gift--we think this is one," says a New York hedge-fund manager, who contends John Alden is one of the few "quality, conservatively managed insurers around." One big trader says Richard Rainwater bought 1 million shares at around 18.
Many new investors liked the company even before the collapse. They say that the fundamentals are sound and that John Alden is one of the more attractive insurance takeover targets. Rainwater did not return calls.
"By torpedoing the stock, panicky shareholders have practically put the company in play," says James Awad of Awad & Associates, a New York investment firm. "It has become an even more enticing takeover candidate. We've purchased a ton of shares since Apr. 3. At this price, a financial-services biggie is sure to go after it."
True, John Alden Chairman and CEO Glendon Johnson admits he doesn't yet know how big a problem the surge in claims may present. He says it's still too soon to tell whether the increases represent a trend. But, Johnson adds, the company will continue to raise its rates in health care, cut expenses, and review claim-processing operations for improved efficiency.
Analysts have been quick to slash earnings estimates. The company itself admitted that earnings would be 20% to 25% below expectations. For all of 1995, analysts had expected $4.19 a share but have cut that to $3. For 1996, they see a slight uptick, to $3.38.