Quick & Reilly Quietly Attracts Brokerage Bargain-Hunters

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By Erle Norton
Staff Reporter

It often pays to look in a giant's shadow.

That's where investors will find discount stockbroker

Quick & Reilly Group

(BQR)

, which is overshadowed by industry titan

Charles Schwab

(SCH)

.

But investors might want to take a closer look. Palm Beach, Fla.-based Quick & Reilly has recorded strong operating earnings while steadily building its business. And its stock looks cheap. The stock's price-to-earnings ratio, based on trailing 12-month earnings, is 6.3. Schwab's, by comparison, is about 25.

"I'd just say it's a bargain," says A.J. Edwards, an investment analyst with money-management firm

Wright Investors' Service

in Bridgeport, Conn. Wright has a "retain" rating on Quick & Reilly, mainly because the discount broker's fast growth has put its ratios such as reserves to total assets below Wright's standards, Edwards says. But even with that retain rating Edwards says the firm is adding to its Quick & Reilly holdings in some accounts.

"It's a great name with a great franchise," adds Ronald Sadoff, of

Ronald Sadoff's Major Trends

, a Milwaukee-based firm that manages about $220 million. Sadoff is adding to his Quick & Reilly stake as part of his belief that brokerage firms in general will do well when the bull market resumes, which he believes will happen because inflation remains tame.

Quick & Reilly showed its muscle in the fiscal fourth quarter ended Feb. 28 when it earned $23.2 million, or 92 cents a share, compared with $25.4 million, or $1.01 a share, in the year-earlier period. Without special items, Quick & Reilly earned 86 cents a share in the 1995 fourth quarter.

For the fiscal year, Quick & Reilly's earnings climbed 18% to $82.0 million, or $3.26 a share, from $69.4 million, or $2.78 a share, in fiscal 1996. Revenue jumped 14% to $507.0 million from $443.9 million.

Investors like Quick & Reilly's core discount brokerage business, but they also note that it is successfully pushing into other areas of securities trading. One extension is the company's Internet trading service, QuickWay Net, which has garnered solid reviews. Quick & Reilly has recently added the ability to trade mutual funds, options and bonds with its service.

In the fiscal fourth quarter, its

U.S. Clearing

unit, a securities clearing firm, introduced an Internet trading service that it sells to banks. The customized service permits banks to place their own name on the service and offer it to their own customers.

Quick & Reilly also has a strong

New York Stock Exchange

specialist unit,

JJC Specialist

, which makes a market for 280 Big Board stocks. The unit makes up more than 16% of the company's overall annual revenue.

And the firm is building its market-making capabilities. It recently acquired

Nash Weiss

, which makes a market in about 2,500

Nasdaq

stocks. Terms weren't disclosed.

Analysts say more acquisitions are possible. For example, the firm is considering diversifying more by buying a mutual fund company, says Stephen Jones, an analyst at stock-research firm

Value Line

. Jones calls Quick & Reilly undervalued. "It still has room to grow," Jones says.

To be sure, Quick & Reilly could hit potholes. For one thing, a protracted market downturn would sap revenue at all brokerage firms. "If the correction does continue, volume tends to dry up," says Jones. "If that were to occur, that would hurt the company."

Quick & Reilly's Internet trading service faces a crowded field of competitors, including Charles Schwab and

E*Trade Group

(EGRP)

. Charles Schwab, for instance, says it has captured nearly 50% of that market, a figure a Quick & Reilly spokesman disputes, though he says Quick & Reilly doesn't have its own market-share statistics.