June 17, 1998
Stocks for Dad Part I
To Dad From Selena
by Selena Maranjian (TMF Selena)
Cendant Corporation
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6 Sylvan Way
Parsippany, NJ 07054
http://www.cendant.com
$19 3/16 as of June 15, 1998
Hey, Pop!
First off, happy 40th anniversary on your marriage to Mom! I know she agreed to it on a trial basis at first, but it's beginning to look like it might work out.
But back to business. You probably want to know what stock is looking interesting to me these days. Well, I've found one you might like. For starters, it's headquartered in our beloved Garden State -- only about 30 exits away from you. (New Jersey's image has certainly been shifting lately. First it gets the Giants and Jets, then it gets part of Ellis Island, and now even the New York Stock Exchange has been house-hunting there. Pretty soon we might spot the Empire State Building being tugged across the Hudson on a barge.)
So dad, meet Cendant Corp. It's a company after your own heart, as it deals heavily in coupons and discounts, among other things. Cendant is the product of a 1997 $14 billion merger between CUC International and HFS Inc. Founded in 1973, CUC began life as Comp-U-Card and grew into a sizable company, running more than 20 programs that offer some 66 million members discounts on items such as cars, books, travel, dining, and heath and fitness products. (You read right -- 66 million members. That's a huge chunk of America.) It is also the #1 distributor of mutual funds, annuities, and life insurance via banks. (Perhaps this last item isn't entirely Foolish -- but at least it's lucrative.)
HFS was no slouch, either. It was the world's largest hotel and residential real estate brokerage franchiser. If you never heard of HFS, maybe that's because it was only formed in 1990. It went on to acquire all or part of such properties as:
Century 21 (#1 worldwide realtor)
Coldwell Banker (#2 worldwide realtor)
ERA (#4 worldwide realtor)
Howard Johnson, Ramada Inn, Days Inn, Super 8, Travelodge
Avis
Resorts Condominiums (#1 time-share vacation service worldwide)
These companies are impressive enough on their own, but when merged... well, consider the words of Hoover's (at www.hoovers.com):
"The synergistic merger allows several operations to cross-market: for example, real estate, relocation, and mortgage services from HFS tie in with a CUC operation offering home improvement referrals and another that mails merchant coupons to people who have recently moved. Cendant also enjoys synergies in such industries as travel and hospitality, vehicle fleet management, and financial services."
Cendant has a finger in almost every pie, it would seem. It even owns Jackson Hewitt, America's second-largest tax preparation company. Cendant is also not neglecting the exciting retail possibilities of the Internet. Online matchmaking? It owns Match.com. Online bookselling? Books.com. Online malls? Netmarket.com. National apartment rentals? Rent.net. The company also owns the educational software companies Davidson & Associates and Knowledge Adventure and the computer game firms Sierra On-Line and Blizzard Entertainment.
Who are Cendant's customers? Well, pretty much anyone who eats, works, travels, relocates, plays, shops, dates, reads, vacations, works out, invests, or does any of a number of other things. In short, it's a pretty big field.
I know that you've learned from observation that all the companies that attract my interest don't always fare well. So consider the thoughts of some other Fools, as well. On May 4, 1998, Dale Wettlaufer discussed Cendant's purchase of the Royal Automobile Club's (RAC) Motoring Services, which will make Cendant the AAA of Britain. (Note: Cendant's international business is expanding.) A month earlier, Alex Schay and Dale wrote a two-part (part one, part two) feature on Cendant after "accounting irregularities" caused the stock price to be cut nearly in half. In addition, many more Fools are discussing the merits of the company on our message boards.
Some attractive numbers for Cendant (according to Marketguide), include most recent quarterly revenues up 129% from a year ago, EPS up 63% in the same period, an estimated five-year growth rate of 23%, and a five-year average return on equity of 24%. In its quarter ended March 1998, Cendant's profit margin was a robust 16%. It's not all rosy, though. The company has taken on a lot of debt, for example, and it will also be expending a bit of energy combining its operations in the most profitable way. Despite this, I think the company is at least worth a look. Do your own homework and see what you think.
* A Stock for dad represents the opinion of one Fool and in no way should be taken as the opinion of either the Motley Fool, Inc., the company in question or representative of anyone or anything else other than that specific Fool's thoughts.