A 12% dip in the price of Mercury Finance Co. shares Tuesday highlighted a fissure among analysts covering the subprime automobile loan industry.
Flexible accounting rules and a risky customer base have caused analysts to offer widely disparate views on companies like Mercury, based in Lake Forest, Ill., and Eagle Finance Corp. of Gurnee, Ill.
Mercury's stock fell $1.625 a share Tuesday, to close at $12 on volume of 3.2 million shares. Wednesday, nearly 1.5 million shares were traded, as the stock gained 12.5 cents. Average daily volume has been about 450,000 shares.
Fueling investor concern, the company reported that first-quarter loan volume was flat compared with the fourth quarter of 1995. For some, this overshadowed the 29% rise in net income from the year-earlier quarter, to $32.3 million.
Joseph Jolson, an analyst at San Francisco-based Montgomery Securities, said the deceleration in loan growth during the past year is troubling.
Mr. Jolson predicted sales volume would pick up in the second quarter, and he boosted his 1996 earnings estimate for Mercury to 80 cents a share, from 78 cents, in light of the first-quarter results.
The selloff prompted Michael Durante of Cleveland-based McDonald & Co. to upgrade the shares to an"aggressive buy."
"The sharp selloff has been triggered by an incredible overreaction to Mercury's first-quarter earnings report," he wrote.
The flat loan growth did prompt at least one analyst to reduce his earnings estimate. Joseph LaManna of William Blair & Co. cut his 1996 estimate to 81 cents a share, from 83 cents.
While Mercury's shares slipped on the uncertainty, Eagle Finance seemed to buoy investors, who had feared worse, by reporting it had added $7.5 million to its 1995 loan-loss provision to appease its auditors.
After sinking to a 52-week low of $7 a share during the past week, Eagle's shares jumped 73 cents Tuesday, to close at $8. As a result of the restatement, the company's 1995 earnings were cut to $325,000, or 8 cents a share, from $3.5 million, or 82 cents.
But the restatement did not appease everyone. "It's accounting gerrymandering," said Mr. Durante, whose "sell" recommendation had sent Eagle's shares sliding this month. "They've done nothing to solve the problem of inadequate reserves."
Company officials defended the reserve level.
"We received an unqualified opinion from our auditors," said Robert J. Braasch, Eagle's chief financial officer.
Separately, Bank of Boston Corp. has sent to shareholders a plan to increase its outstanding shares by 50%, to 300 million.
"We have substantially reduced the cushion that we like to keep for such purposes as acquisition or for compensation that comes in the form of stock awards, and we'd like to maintain that cushion," said a spokeswoman.
Shareholders will vote on the proposal at the April 25 annual meeting.
First Union Corp., Charlotte, N.C., got shareholder approval this week to issue up to 14 million new shares to compensate employees after the merger with First Fidelity Bancorp.
Daniel Dunaief contributed to this article.
