By Rob Plaza
October 19, 2000
What Happened?
Late Wednesday, Cendant Corporation (NYSE: CD) reported third-quarter earnings from continuing operations of $0.29
per share, in line with consensus estimates and an increase of 6% over the third quarter of 1999. Total revenue
decreased 13% because of the disposition of several businesses in the Direct Marketing and Diversified Services
divisions, but management said it was comfortable with full-year 2000 estimates between $1.02 and $1.05 per share.
What It Means For Investors
We still view Cendant's shares as cheap, and think that patient investors may be handsomely rewarded over the long
term. Cendant is trading at only 9 times 2000 earnings and has a five-year projected EPS growth rate of 17%, according
to First Call estimates. Cendant's beaten-down stock price (with a year-to-date return of negative 68%) is still
feeling the effects of the shareholder lawsuit brought on by accounting irregularities at CUC International, which
merged with HFS to create Cendant Corporation in 1997. But in August, Cendant finally reached a $2.8 billion settlement
that should lift some of the fog that has enveloped the shares since 1998.
With its shareholder lawsuit out of the way, Cendant began to increase its acquisition activity during the third
quarter. The company made a tender offer to purchase the 82% of Avis (NYSE: AVI) shares that it doesn't already
own, acquired the AmeriHost brand name and franchise rights, and acquired a relocation services company based in
the United Kingdom. This increased pace of acquisitions should produce improving growth in revenue and earnings
relatively quickly, which may be the catalyst this stock needs to entice investors who previously stayed away.
Rob Plaza can be reached at rob_plaza@morningstar.com.
Visit www.morningstar.com daily for in-depth analysis of stocks, funds,
and sectors in the news.