Welcome to our latest Foolish feature, the Daily Double, sponsored by eBroker. Each market day, we'll be presenting a stock that has doubled in the past six months. For more information on this column, please read the "Introduction."

Fine Host Corp.
(Nasdaq: FINE)
Phone: 203-629-4320
Price (4/11/97): $23 3/8

HOW DID IT DOUBLE?

A fine host indeed! Investors have been treated to a delicious meal of capital appreciation over the last half year as these shares have risen steadily from an early August low of $10 1/2 to a late February high of $28 1/2.

The rise came as Fine Host's appetite for acquisition became apparent shortly after its June initial public offering gave the company $33 million in spending money. A further offering of 2.5 million shares in mid-February brought in another $52 million for the company to play with.

Fine Host has begun to flex some muscle as a consolidator in the contract food service business. Since July, Fine Host has picked up six companies with annual revenues of more than $83 million. The firm has paid about $0.35 per dollar of sales.

So far, the acquisitions have added to earnings per share, despite the enormous increase in shares outstanding. For the December quarter, sales jumped 59% to $40.7 million, up from $25.6 million during the year-ago period. Net income soared to $1.9 million, or $0.30 a share, versus $869,000, or $0.24 per share, in the fourth quarter of 1995.

For the year, sales notched up to $127.9 million, 34% above the $95.5 million reported in FY95. Net income rose 73% to $3.8 million, or $0.76 per share, up from $2.2 million, or $0.66 a share in FY95 on 50% fewer shares. Fully diluted, earnings were $0.50 per share vs. $0.39 per share in 1995.

BUSINESS DESCRIPTION

Based in Greenwich, Connecticut, Fine Host is a leading contract food

service management company, providing food and beverage concessions, catering, and related services at more than 400 facilities located in 38 states. The company concentrates on four markets: recreation and leisure (30 facilities, including 8 minor league baseball stadiums, Tempe's Sun Devil Stadium, Miami's Pro Player Stadium); convention centers (24 facilities, such as Orlando's Orange County Convention Center); education (111 facilities, including Wayne State University and Morris Brown College); and corporate dining (148 facilities, among them GM and Chrysler).

Fine Host provides everything from beer and hot dogs at ball games to convention center banquets serving thousands. The company also fed the 400,000 people of the mud at Woodstock '94. The convention and recreation markets each make up about a third of sales, but Fine Host has been rapidly expanding in the lower margin corporate dining market and the lucrative education market, particularly the $10 billion K-12 niche. A recent Investor's Business Daily article said the highly fragmented contract food market is a $96 billion a year business.

Most of the firm's contracts (the exception is corporate dining) run from three years to ten years and give Fine Host exclusive concession rights. The company is now looking to buy firms in the $10 million to $25 million range. About 14% of the shares outstanding are owned by insiders. Management also has options to purchase another 470,000 shares.

FINANCIAL FACTS

     Income Statement
      12-month sales: $127.9 million
      12-month income: $3.8 million
      12-month EPS: $0.50
      Profit Margin: 3.0%
      Market Cap: $209.4 million

      Balance Sheet*
      Cash: $4.7 million
      Current Assets: $26.3 million
      Current Liabilities: $21.7 million
      Long-term Debt: $31.6 million
      (*As of December. Does not include $51.9
      million from the February offering.)

      Ratios
      Price-to-earnings: 55
      Price-to-sales: 1.6

HOW COULD YOU HAVE FOUND THIS DOUBLE?

In business since 1985, Fine Host has shown that its managers are capable of handling a variety of venues. Wall Street often (at least temporarily) rewards companies with the track record to play consolidator in a fragmented industry. Purchasing these shares in November or December, after the acquisition announcements, might have rewarded you with a fair chunk of change, if not quite a double.

Then again, valuation is a question here. Although the company concentrates on higher-margin, medium-sized venues, its margins are still tight, making the current 1.6 price-to-sales ratio look awfully pricey. Of course, that ratio needs to be revised down based on the new acquisitions, and revised back up a bit to account for the full dilution of warrants and options.

WHERE TO FROM HERE?

Analysts are looking for earnings of $1.08 per share in FY97, with $1.42 per share in FY98, and 27% annualized long-term growth. A loss in 1Q 1996 takes away our PEG, but the YPEG gives us fair value around $29, right about where these shares topped out five weeks ago. It appears that you might get awfully hungry waiting for these shares to double again.

Some investors hate consolidators, but the business model can prove attractive if a company really can create cost savings and, in this case, use its size and new contacts to win new contracts. Given the competitive nature of the business, though, I'd want to take a close look at improvements in operating income and re-calculate the price-to-sales ratio to account for the increased revenues coming from the new acquisitions before I even thought about taking a bite of these shares at the current price.

-Louis Corrigan (RgeSeymour)

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