Alex. Brown & Sons' shares no longer have the dubious distinction of being among the least favorite financial company stocks on Wall Street.
Before last week, the stock had a 3.5 rating in First Call Corp.'s consensus ranking (see table on page 30), meaning that on average analysts had ratings of "hold" to "sell" on Alex. Brown. But last Monday, Prudential Securities - one of only two firms tracked by First Call Corp. that cover the brokerage company's stock - raised its rating to "buy," from "hold."
That produced a 2.5 average - "accumulate" to "hold" - putting Alex. Brown in the middle of the pack.
Analyst Dean Eberling upgraded the stock three days after the Baltimore- based brokerage reported first-quarter earnings up 79% from the same period of 1995.
Alex. Brown shares surged on news of the upgrading, closing last Monday at $51 up $1.125. Since then, the stock has steadily marched forward. It closed Friday's trading at $54, up $1.125.
Perrin Long, a former analyst at Brown Brothers Harriman & Co. who now follows the stock as an independent analyst, said he had advised "short- term investors in the company to sell" last July because of the market's volatility.
"Brokerage stock goes up dramatically when the equity is strong, but when the equity market cools off the stocks go down," explained Mr. Long. "By the end of July, Alex. Brown's stock got up to $60, and at that point I said, 'Sell it.' The stock later went down to $42.25 at the end of the year."
Mr. Eberling also had rated the company "hold" and "sell" for most of 1995 because its general business was not as brisk as in the company's boom years of 1992 and 1993.
"Shareholder equity has grown ... from $70 million at the end of 1990 to $546 million at the end of the first quarter," Mr. Eberling pointed out in his report, but "its absolute inventory carried has remained below the levels carried in the 1980s."
The better-than-expected earnings report prompted Mr. Eberling to upgrade the stock and set a price target of $62-$65 a share.
In his report, Mr. Eberling said the quality of the net revenue and earnings streams is "less volatile and subject to less risk than the larger investment banks'."
He added that the Glass-Steagall Act's restrictions on affiliations between banks and securities firms probably will crumble in the next two years. This would eventually thrust Alex. Brown "into the spotlight as a potential takeover candidate," he said.