Health maintenance firm is on a roll

Donald Saltz

July 31, 1992|By Donald Saltz

Last year, one of the analysts' favorite area stocks -- Mid Atlantic Medical Services -- hit harder-than-expected times. As a result of the weak economy, some large bills due it went unpaid. And some customers, fearing the loss of their jobs and medical coverage, demanded additional medical services. The result was sharp dip in the stock price, which at one time lost almost two-thirds of its value.

However, the Rockville-based company, the largest health maintenance firm in Maryland, is rolling ahead these days. Its client base rose by 37,000, more than 5 percent, in the second quarter alone, and quarterly profits shot up more than 62 percent. Six-month earnings of $5.1 million increased 33 percent.

Mid Atlantic has an impressive earnings trend -- per share earnings more than doubled from 1989 to '90, and despite the problems of last year, earnings still gained 36 percent. The share price had a huge swing, from a high of nearly 19 to a low of 6 1/2 , ending the year in the middle of that range.

This year, the stock price has dawdled despite the company's sharp gains. The latest quarter, for example, ended with a 50 percent rise in revenues to accompany the 62 percent-plus earnings increase.

In noting the record earnings pace of this year, Mid Atlantic's chairman and president, George Jochum, emphasized the strong cost controls now in place. Additionally, the company says it has the lowest administrative costs of any HMO in the country.

Among Mid Atlantic's clients are employees of major businesses such as the May Co., Potomac Electric Power Co. and the Marriott Corp., along with those of the federal and state governments.

In all, some 726,000 individuals were under Mid Atlantic's medical coverage on June 30.

Mid Atlantic, unlike many firms, is willing to forecast its earnings and revenues.

A company spokesman says this year the company should earn between 85 and 93 cents a share, on revenues of $570 million to $580 million, respectively.

Trading this week at about 12 means a price-earnings ratio of 13 to 14 if those earnings materialize.

The P-E last year ranged from 13 to 38 based on the price range and full-year earnings.

Mid Atlantic had about 14.2 million shares outstanding at the end of the second quarter, 2 percent fewer than a year earlier.

Almost 2 million shares are owned by mutual funds, and the like.

* WRIT loosens its purse: Howard Cochran still has lots of money play with, even though $8 million has been spent for an office building in Alexandria, Virginia.

Cochran is vice president of finance for the Washington Real Estate Investment Trust, based in Bethesda, and the money he "plays" with is neither his nor Monopoly money -- the cash is part of the huge kitty built up by the trust for buying property during times when the economy has created some real estate bargains.

WRIT recently sold new shares that brought in more than $42 million and it still had a good deal of money from an earlier underwriting.

The idea was to be able to pay cash for quality investments that could be bought at somewhat distressed prices.

WRIT, which has the best historic record in the entire real estate trust industry, notes that it's been able to build up its cash pile at a cost of 5 percent (dividend payout) while being able to bring in much higher investment returns.

The latest return, from the almost fully leased new property in Alexandria, is projected at 11 percent.

About a month ago, WRIT purchased a $6.3 million property from the Resolution Trust Corp., which is attempting to reduce its real estate inventory.

WRIT shares have been selling in the vicinity of 17 for weeks.

It has virtually no debt, and its dividend is likely to be raised again at year-end.

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