It was a good week for Geico Corp., the riches-to-rags-to-riches insurance company that makes its home in the Washington area. But it was a bad week for any investor who looked at Geico stock back when it was selling in the $2.50-$5 range and thought, "Too risky," or for any investor who was brave enough to buy the shares at those prices but decided to take profits at $12 or $15.
Geico stock closed at $65.875 on Friday, setting a 15-year high. The record price was set two days after Geico announced that its 1984 operating earnings had increased 14 percent, a result Chairman Jack Byrne described as "a good -- not landmark -- year for Geico."
By now, few investors are unfamiliar with the tale of how the Government Employees Insurance Co. fell on hard times in the 1970s, looked like it would sink out of sight, was revived by Byrne and went on to succeed and prosper. While tales of past triumphs are fun, the question faced by today's investor is whether Geico stock, which has risen so high, is likely to go any higher.
One analyst who thinks so is Charles T. Akre Jr., director of research at Johnston, Lemon & Co., a Washington brokerage firm that has had a long and supportive relationship with Geico.
"Just because a stock goes up so high has nothing to do with whether you would buy it," Akre said. "You look at the absolute value of the business and what price it is selling for in the marketplace."
One way to measure that relationship is the ratio between stock price and earnings. Geico's price-to-earnings ratio stands at 12.7 for 1984's operating earnings of $5.11 a share and at 11.3 for Akre's 1985 estimated operating earnings of $5.75 a share. Both P/E ratios, Akre said, track well with other indicators of market value.
But Akre has some even stronger feelings about Geico's future and especially about the firm's management. "What I care about in Geico is the discipline with which they run it," he said. He said he considers Geico's managers to be "zealots about profitability and productivity."
That discipline, Akre noted, is being tested by Geico's reduced profits on its underwriting business in 1984. The lower profits were the result of an increase in accidents and the cost of accidents. The company, Akre said, is attempting to improve its profits with a package of actions, including selected rate increases.
Akre offers several other reasons for his faith in Geico. One of these is the program under which Geico has repurchased half of its outstanding shares during the past seven years. Among other benefits, Akre said, this tends to put a floor under the price of the stock. He thinks those prices have a potential to decline as much as 5 percent or gain between 20 to 25 percent a year.
Akre said he is impressed with the $200 million (and growing) cash flow Geico generates annually and the "outstanding" results Geico has achieved on its investments. Geico has a $1.2 billion portfolio.
Joel H. Krasner of Dean Witter Reynolds, who follows Black & Decker, the Towson, Md., power tool company, is maintaining a buy/hold posture on its stock. In a recent update on Black & Decker, he wrote: "We suggest positions be maintained and added to on any price weakness, while a program of option writing should be considered to further enhance returns." The stock, which closed Friday at $24.875, is selling somewhat below its five-year high of $28.625. First-quarter earnings came in at 54 cents on a 7 percent increase in average shares outstanding. For the same quarter a year earlier, the company earned 56 cents. Krasner looks for a second quarter that is relatively flat, or even down, because retailers generally are tightening up on orders in many areas. However, low inventories, he believes, could cause a surge in production for Black & Decker in the third quarter.
Dominion Bankshares Corp. of Virginia has been recommended by bank analyst Daniel P. Collins of Scott and Stringfellow in Richmond. Collins, who studied 11 banks in the Virginia-North Carolina region, said he based his view on Dominion's "below-average price-earnings multiple, the lowest price-book value ratio of the group, and an above-average estimated earnings gains." He also expressed confidence in his $3.85 estimate for Dominion's 1985 earnings. Collins said he saw improvement in the bank's net interest margins and noted that fourth-quarter earnings, up 30 percent over the previous year, would have been even higher if the bank had not decided to increase its reserves for any future loan losses. Dominion stock, which moved up 20.7 percent during 1984, closed Friday at $28.75.
Perpetual American Bank, at its annual meeting today, will consider a series of antitakeover amendments it says are "designed to assure that all stockholders are treated fairly in certain business combinations and to make the bank a less attractive target for an acquisition of control by an outsider who does not have the support of the board of directors."
Are any raiders out there waiting? None that the board of directors are aware of, the bank says. In fact, Perpetual American's charter says that no one can acquire more than 10 percent of the stock for the next three years. Even so, the board thinks it would be a good idea to be ready for any future takeover attempt. The antitakeover measures include: a move to make permanent the present five-year ban on cumulative voting, which allows minority stockholders to place a representative on the board of directors without board approval; a requirement that 50 percent of stockholders approve any special meeting, and a provision to prevent the two-tier pricing of stock, in which some stockholders receive a higher price for shares than other stockholders are paid.
The American Stock Exchange, reporting on companies that chalked up the greatest percentage gains on the Amex in 1984, lists Martin Processing of Martinsville, Va., in 17th place with a gain of 68.5 percent. The company, which has been on the comeback trail, dyes carpet yard and makes textile machinery. In 23rd place is Arundel Corp., which rose 61.7 percent. During 1984, outside investors bought about 27 percent of the stock in the Baltimore-based real estate and construction materials company.
In September, the firm of Laidlaw, Adams & Peck, began answering the phone, "Laidlaw Ansbacher," to mark its merger with Henry Ansbacher Holdings PLC, an international merchant banking organization with headquarters in London. In New York, the firm hired a flock of analysts -- some at very high salaries -- and poured considerable amounts of money into the new operation. At the three Washington area branch offices, logos and signs were changed, stationery and business cards were reprinted.
Five months later, the marriage is off and the firms have gone their separate ways. Once again local brokers are answering the phone: "Laidlaw, Adams," and redoing the signs, the letterheads and business cards.