Advanta Gets Thumbs Up Despite a Brief Downturn
Last month's scare over a ceiling on credit card interest rates frightened few shareholders more than those in Advanta Corp., a Pennsylvania financial services star whose stock had rocketed 135% in value since midyear.
Shares of Advanta, which gets 70% of its revenues from Visa and MasterCard customers, set a 52-week high of $38.50 on Nov. 13. A few hours later, the U.S. Senate unexpectedly voted for a cap on card rates.
In the chaotic market of the next two days, the stock lost nearly a third of its value. It remains well below its peak despite a quick shelving of the rate cap by Congress - and analysts view Advanta shares as a good buy for investors.
"Advanta stock will recoup a substantial part of its recent drop," predicts Sy Jacobs of Mabon Securities Corp., New York. It traded Monday at $28.75, up 75 cents on the session.
"Advanta has relative appreciation potential of 50% or more over the next six to 12 months," concurs Larry Eckenfelder of Prudential Securities Inc. He rates the stock an "aggressive buy."
Advanta is among a handful of publicly traded companies nationwide whose principal business is bank cards. The most prominent among them is MBNA Corp., Baltimore, which has made a specialty of marketing "affinity" credit cards to target groups.
Risk-Control Strategy
Based in Horsham, Pa., Advanta operates its credit cards through Colonial National Bank, Claymont, Del., and markets them in a way that analysts say puts it at less risk during the recession than other bank credit card issuers.
Rather than taking applications spurred by advertising, Advanta selects the customers it wants to reach through credit research and directly solicits them. Its main product is a no-fee gold card whose interest rate is tied to the prime rate.
Investors worried that a rate cap would force the company to levy fees and suffer a heavy impact on its booming card business. The company registered 40% compound growth in card outstandings between 1987 and 1990.
The remoteness of rate cap legislation after November's uproar prompted Mr. Eckenfelder to raise his 1992 earnings estimate for Advanta to $2.85 from $2.70 a share. Mr. Jacobs estimates earnings at $2.75.
|Supermarket Concept Fading'
"With the thrift industry withering away and the financial supermarket concept fading, the competitive environment bodes well for efficient financial services niche players" like Advanta, Mr. Jacobs said.
While competition will remain intense in the bank card business, "Advanta is not burdened by losses in other product lines like many of its commercial bank competitors," he noted.
Advanta began in 1951 as the Teachers Service Organization, offering lending and other financial services to Philadelphia teachers. It shifted to its current profile with the acquisition of Colonial National in 1982.
Besides credit cards, Advanta originates and services home equity loans, sells credit insurance, and is active in equipment leasing.
Bank of Boston Corp. shares were clobbered Monday on market fear a merger is near with Shawmut National Corp., Hartford Conn. The stock was off $1.25 to $10, or 11.1%, in afternoon trading on heavy volume.
