Cendant Comes Back

Cendant (CD ), slammed by accounting irregularities in 1998, is the new comeback kid. The franchiser of motels -- Ramada Inn, Days Inn, and Howard Johnson -- and owner of Avis and Budget rental cars has cleaned its balance sheet, paid off debt, improved governance, and now generates $2 a share in free cash flow, notes Robert Lyon, president of Institutional Capital, which owns 2.5% of Cendant in its $10 billion portfolio. The accounting fraud was at CUC International, which Cendant acquired in 1997. Cendant has a $2.8 billion trust to settle litigation. "The accounting issue is behind it," says Lyon. Cendant is also in real estate with Century 21 and Coldwell Banker; in travel with Galileo International's Cheap Tickets and Lodging.com; and in tax prep with Hewett Jackson. Lyon sees travel set to pick up.

Cendant hit 41 in 1998 but crashed to 6.50 before yearend -- after the accounting snafu. It has since risen to 14. Lyon notes that, since 2000, sales and earnings are up. He sees the stock at 20 in a year. And Cendant, he says, may use its huge cash flow to pay dividends. Tom Graves of Standard & Poor's rates the stock accumulate, and sees 2003 revenues jumping to $18 billion from 2002's $14.1 billion. He figures Cendant will earn $1.45 a share, excluding special items, in 2003, vs. 2002's $1.04.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Gene G. Marcial

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