Schools manager EAI aces market test

June 05, 1993|By Ian Johnson | Ian Johnson,New York Bureau

NEW YORK -- The company running nine inner-city schools in Baltimore -- the nation's first experiment with private management of public schools -- has become one of the stock market's stellar performers, with its share price rising nearly 50 percent since the start of the year.

Yesterday, Education Alternatives Inc.'s stock closed at $32, an increase of $2.25 in over-the-counter trading. The stock has set a record high each day this week. Just last fall, it traded in the low 'teens and started the year at $22 a share.

The bull run comes after the company has shown steady profits for the first time in its seven-year history and has generated increasingly favorable reviews for its efforts in Baltimore. While some dissenters remain, the nine schools are widely portrayed as having improved markedly since EAI took over last summer.

"Early indications are that they may be making a difference in the classroom and, if they are, they are on the leading edge of a $220 billion industry," said Kevin P. Harris, an analyst with Summit Investment Corp.

Last July, when EAI was awarded the five-year, $133 million contract to run eight elementary schools and one middle school, it saw its stock increase, but investors were hesitant, and the share price never went over $15.

The major stumbling block to credibility was the company's claim that it could make a profit and improve education by running the schools more efficiently. Although EAI's nine schools receive more money from the school board than they did prior to the company's involvement, EAI had committed itself to an ambitious and potentially costly program of supplying classroom computers, improving their appearance and implementing a new curriculum based on more student involvement.

Much of this program has been carried out, though the curriculum is only being introduced slowly. Some teachers have criticized EAI's work, but many more parents and outsiders have been won over by the schools' spiffed-up appearance, the computers and the children's eager attention in class.

Michael T. Moe, an analyst with Dain Bosworth Inc., said this apparent success has given investors confidence in EAI's basic product -- the efficient management of public schools.

"Some people might take issue with some of their efforts, but it seems viable. This is beginning to look like a biotech company that has hit on a marketable product," Mr. Moe said.

Unlike a biotechnology company that is trading high based on future profits, though, EAI's attraction seems to lie in the fact that it is profitable now. For the three months ended March 31, EAI reported a profit of $452,000, or 7 cents a share, in contrast to a $407,000 loss for the same period a year ago.

Revenues have also risen as money from the Baltimore contract hit EAI's books. The company now averages $8 million in quarterly revenues vs. $800,000 a year ago.

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