Money Store Inc. is producing a wow effect on Wall Street.
In the last two-and-a-half weeks, the Sacramento, Calif., lender's stock has skyrocketed about 36% to around $50 - an increase of more than $13.
Analysts said the July 26 announcement of better-than-expected earnings in the second quarter had generated a buying frenzy on Wall Street.
Last quarter was a watershed for Money Store, which originates home equity, small-business, and student loans.
It also may be a watershed for other finance company stocks, which could ride the coattails of Money Store shares, some analysts believe.
"It really was one of those quarters that you stand back and say 'wow,' " PaineWebber Inc. analyst Gary Gordon said of Money Store's earnings.
So far this month, prices for stock in other finance companies have remained relatively flat.
Mr. Gordon said Money Store showed a growth level expected more from companies such as Microsoft Inc., the computer software giant, than from a finance company.
Money Store earned 79 cents a share in the second quarter. Analysts had expected earnings of about 60 cents a share. Its net income rose 54%, to $10.8 million.
Loan originations reached $853 million, up 37% from the year-earlier period. In a press release accompanying the earnings announcement, Money Store president and chief executive Marc Turtletaub attributed the increase to strong growth in home equity lending.
Mr. Turtletaub is the son of Money Store's founder, Alan Turtletaub, considered one of the most original thinkers in the finance business.
The company earned $77 million from loan sales. That's about $10 million more than some analysts expected.
"These guys have done an outstanding job executing the plan," said Jeffrey C. Villwock, a partner at Johnson Rice & Co., New Orleans.
Money Store's success is all the more remarkable because it comes in the face of burgeoning competition in the home equity market. Many previously conservative lenders, pressed for volume and eager to earn high margins, have jumped in.
In response to the news, Mr. Gordon of PaineWebber raised his rating of the lender to "attractive" from "neutral."
"To raise my opinion on a finance company was not something I did lightly," he said.
Money Store also announced a 3-for-2 stock split on July 26. The split goes into effect on Sept. 21.
Why has Money Store emerged?
Since the early 1990s, it has used securitizations of its home equity loans to further its loan production. Most of the home equity loans it originates are to borrowers with impaired credit, which carry higher profit margins for the lender.
The company, which has long used highly recognizable pitchmen like baseball Hall of Famers Phil Rizzuto and Jim Palmer in heavy TV advertising, has only now begun to leverage its well-known brand name with investors.
Analysts expect the company will capitalize significantly on the Money Store name in the future.
The analysts also pointed out that excess costs cut from Money Store's servicing and branch operation began to show up positively in earnings.
Mr. Gordon now expects the company to grow 20% per year. He had expected 12% growth before the second-quarter earnings came out.
Money Store's Wall Street success bodes well for other finance companies, said Mr. Villwock at Johnson Rice.
He said Wall Street had been valuing such companies lower than their worth "because they didn't understand" the lending market for credit- impaired borrowers.
"Wall Street is finally becoming more comfortable with the fact that these are finance companies and not mortgage companies, and (investors) are valuing them as such," he said.
