Hfs Activities Give Hotel Firm Strong Position Aggressive Acquisitions Have Analysts Bullish On Stock

If you think it was tough keeping up with the Joneses last year, consider how much tougher it was keeping up with HFS Inc., the franchise company whose hotel empire includes about 4,700 Days Inns, Howard Johnsons, Ramadas, Park Inns, Super 8’s and Villager Lodges.

Not only did HFS add Travelodge to its portfolio in 1995, it also announced plans for a new business-oriented hotel chain (Wingate Inn), signed an agreement for Days Inn to build 6,000 hotel rooms in China, branched out into residential real estate and home warranty insurance, and - in a coda to its diversification strategy - changed its name from Hospitality Franchise Systems.

It also concluded “preferred vendor” agreements giving HFS franchisees guaranteed lowest discounts on an array of products as diverse as co-branded credit cards and Cadillacs. And it licensed the name of one of its newer acquisitions, Century 21, for use on a magazine to be published by Hachette Filipacchi, and for use by Amre Inc., which for the past 13 years has provided home improvement under the Sears name.

That 20-year agreement calls for Amre to pay fees to HFS equal to the greater of 3 percent of revenues or certain guaranteed minimums satarting at $11 million this year and rising to about $40 million.

As a result of all this, anyone who not only kept up with but invested in HFS, especially earlier in the year, would have been well rewarded. Its stock soared from $25.25 at the start of trading on Jan. 3, 1995, to $81.75 at the end of the year, before falling to about $75 last week.

On Dec. 22, BT Securities upgraded HFS stock to “strong buy,” from “outperform,” raising its estimated 1996 earnings to $2.20 a share from $2.10 and its 1997 estimates to $2.88 from $2.70 - estimates that it said “could prove conservative.”

The main reason for analysts’ bullishness is the coming together of HFS’s strategic plan, made possible by its agreement last June to pay up to $230 million for Century 21, the nation’s biggest residential real estate chain.

While HFS was not doing badly on its own - its stock closed at $29.25 the day before the Century 21 announcement - that acquisition brought about synergies that have proved elusive for so many other companies.

Henry R. Silverman, chairman and chief executive of HFS, said at the time of the acquisition that he expected Century 21 to add to the parent company’s per-share earnings and provide revenue diversification. HFS management skills, he added, could be applied to other franchise businesses in the form of “marketing skills, enhanced franchised services, unit growth, brand extension and cost consolidation.”

Less than two weeks ago HFS announced the acquisition of Electronic Realty Associates for $36.8 million and of its home warranty insurance subsidiaries for $9.2 million.