Can mortgage banker New Century Financial (NCEN ) keep on sprinting? Shares streaked from 9 on Sept. 24 to 26 on May 29. Some think the stock has a ways to run, and several fund managers are snapping up more. When the stock was highlighted in this column two years ago--then at 8--New Century had few fans. Now some see it hitting the mid-40s by August, when strong second-quarter results are expected.
Otis Bradley, research director at Gilford Securities, who has raised his 2002 earnings estimate to $6.27 a share, says the stock is cheap, trading at 4.1 times his 2002 estimate, and just 3.7 times his forecast of $6.91 for 2003. New Century earned $2.28 in 2001. Bradley expects housing to stay strong. So he sees the stock hitting 60 by yearend--8.6 times his 2003 profit estimate. Its industry peers trade at 9 to 12 times their 2003 earnings estimates, says Bradley, who owns shares. Gilford has no business ties with New Century. Bradley puts its 2002 free cash flow at $243 million, or $9.35 a share, and 2003's at $256 million, or $9.48. He says it will pay off debt of $120 million this year. So he expects the company to up its 20 cents dividend and split the stock in 2002.
Gary Steiner of Awad Asset Management, which started buying last year when the stock was at 11, says it "remains materially undervalued." He notes New Century has increased its share of the subprime mortgage loan market, where most borrowers don't satisfy credit standards conventional lenders require. That is partly why its p-e is low. New Century originates loans through its 7,200 brokers and 64 branches in 26 states. Its growth "is sustainable" says Steiner, even if rates tick up: Its customers aren't so sensitive to interest rates.
By Gene G. Marcial