After rewarding investors for nearly a decade,

Concord EFS


has hit a little turbulence. Let's be honest, 1999 was turbulent -- 2000 has been an outright crackup. In the first 10 weeks of this year, shares of the electronic transactions processor gave up more than 35%. There's got to be some really bad news, right? You'd think so, but no one who follows the stock -- even among those convinced that the market knows all -- has stepped forward to explain exactly what went wrong.

The company has certainly offered little by way of explanation. In a Feb. 22 press release, CEO Dan Palmer responded to rumors surrounding "the volatility, trading volumes and decline in stock price," assuring investors that the company's "financial condition and results are solid." He went on to emphasize the company's adherence to conservative accounting policies and procedures, and to defend management's record of apprising the market of its earnings outlook for each quarter and each year.

Don't get me wrong, you'd be foolish not to take such releases with a grain of salt, but I've got to admit, Palmer makes a lot of sense. In January, management did preannounce that the company expected to meet or exceed revenue for the fourth quarter of 1999. The results: Revenue exceeded expectations, rising 41% year-over-year to $250 million. And earnings? At 19 cents per share, reported diluted earnings were dead-on the

First Call/Thomson Financial

analyst consensus. If there was a concern, it would be that gross margins were down a bit both year-over-year and consecutively.

Perhaps investors aren't buying the explanation that the lower margins were attributable to increased revenue from a few high-volume merchants. Or perhaps they're unwilling to accept that these very merchants, though charged lower at the margin, are actually good to have on board. Maybe it all sounds a bit too good to be true? Maybe, but a 35% selloff?

Last month, Concord EFS insiders apparently decided enough was enough. In all, since Feb. 17, eight insiders purchased a combined 101,000 shares on the open market at prices ranging from 16 1/16 to 18 1/16 per share. In case you're worried, Concord EFS insiders are not among those chronic buyers we've seen chasing "value" stock down the tubes. In fact, company insiders (including some who were recently buying) had sold the stock as recently as last summer.

Among those taking the plunge, Palmer himself picked up 30,000 shares, as did President Edward Labry. Significantly, each had


200,000 shares back in 1997. Director Paul Whittington, a seller as recently as November, picked up 3,000 shares, while directors Jerry Mooney and Douglas Altenbern bought 10,000 shares and 5,000 shares, respectively. Of the remaining buyers, a number had sold shares as recently as last year.

Even more intriguing, two of the buyers also sold put options, and thus incurred the obligation to buy Concord EFS shares at 17 1/2. On Feb. 17, Douglas Altenbern wrote puts for 5,000 shares exercisable immediately and expiring in September 2000, while Jerry Mooney did likewise for 12,000 shares with a June 2000 expiration. In essence, these insiders have demonstrated a willingness to buy Concord EFS at 17 1/2 in exchange for the proceeds from the sale of the puts (or, if you will, the privilege of using these proceeds to offset the price of their recent purchase). No matter how you slice it, this seems a vote of confidence that the selloff has run its course.

Short of taking a poll, it's difficult to say why investors are selling Concord EFS. Analysts continue to pump the growth in the company's core transaction authorization, data capture, settlement and funds-transfer businesses. The 1999 acquisition of

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Electronic Payment Services

which provides front-end processing for credit card transactions at larger retailers should provide further cross-selling opportunities for Concord's back-end services.

Those with an appetite for the cutting edge should like the recent acquisition of Internet software developer

Virtual Cyber Systems

-- a move explicitly designed to increase the company's e-commerce presence. Lovers of big names can't help but welcome the company's budding relationships with

Open Market




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So what's the problem? Ridiculous as it might sound, Concord EFS may well be a victim of its own success. Having been handed upside surprises quarter after quarter, maybe this is simply what investors have come to expect. You can't blame them really; after all, that's what expectations are all about. (In fact, a turnaround may be in the air. After hitting a 52-week low of 15 5/16 on March 9, the stock closed at 19 7/8 Wednesday.) For what it's worth, Concord EFS insiders appear to be saying, "Damn the whisper numbers, full speed ahead!"

Bob Gabele has been tracking and analyzing insider trading since 1978, most recently for First Call/Thomson Financial. This column is not meant as investment advice; it is instead meant to provide insight into the methods of insider trading. At time of publication, Gabele held no position in any of the companies discussed in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Gabele appreciates your feedback at