August 27, 2008 - Crawford & Co. "B" (CRDB-NASDAQ) provides claims management solutions to insurance companies and self-insured entities worldwide. It operates through four segments:U.S. Property and Casualty, International Operations, Broadspire, and Legal Settlement Administration.

The Broadspire segment offers information, liability claims and medical management, managed care, vocational, medical case management, long-term care, software applications and consulting, automobile loss recovery, commercial and residential property damage repair, workers' compensation, public liability, and catastrophe services in the self-insurance marketplace.

The Legal Settlement Administration segment performs legal settlement administration related to settlements of securities cases, product liability cases, bankruptcy noticing and distribution, and legal settlements for the securities, bankruptcy, product warranties, and inspections and legal settlements market by identifying and qualifying class members, determining and dispensing settlement payments, and administering the settlement funds.

The company also offers e-Triage, a Web-based application that addresses core problems, such as inconsistency in claim practices and failure to identify complex files in the life of a claim. As of December 31, 2007, it operated approximately 350 locations in the United States and approximately 350 locations in 62 countries throughout the rest of the world. Crawford& Company was founded in 1941 and is headquartered in Atlanta, Georgia.

The stock recently hit a new 52 week high, trading at $16.41. The 52 week low was $3.07, touching there in January of this year. The reason for the steep turnaround? The usual answer: earnings.

They're coming in at triple the rate of last year, should be $.53 cents per share for the full year, up from $.18 cents in 2007. The latest quarter's results were released on August 4. They showed revenues of $263.3 million vs. $240.5 million in the second quarter of last year. Net income for the period was $7.9 million up from $6.1 million last year. Of that $6.1 million last year, $3.1 million came from a recognition of the sale of the former corporate headquarters. On a per share basis, net income for second quarter of 2008 was 16 cents vs 12 cents in 2007 (6 cents came from the sale of the building).

The latest earnings show the strength of operating income. Mr. Jeffrey T. Bowman, chief executive officer of Crawford & Company,stated, "Our second quarter 2008 operating results reflects the strongest second quarter performance since 2001, achieved through incremental revenues and the results of our continued focus on cost control and process improvement. This performance builds on the excellent start we had to the year."

Investors noticed and bought the stock with enthusiasm. With a price of $14.60 as of this writing, the forward Price to Earnings (P/E) ratio is a rather rich 21. Using trailing earnings, it gets to 81, well into the stratosphere. The average P/E ratio for the last 10 years has been within a range of 17 and 34 with the latter number representing last year and the only year it carried that high valuation. Again, the stock has gone up 375% in 9 months.

There's reason for investors to like this company. It's gaining market share in several countries, especially Canada and England. Those foreign currency earnings when converted back to dollars add an extra boost to revenues. Also, the company grew more efficient as volume increased. Operating margins improved, a trend expected to continue. New software is powering the margin expansion.

The caveat on this stock is the volatility of earnings. Claims activity is not a steady growth business, rather is dependent on disasters and other calamaties that require insurance pay-offs. In other words, when the weather's good and people are not too sick or suing each other, the company doesn't have as much work to do.

More numbers: Market Capitalization is $740 million with 51 million shares outstanding but a float of 25.61 million (the class B shares are the ones that trade). Officers and directors own 52% of the class B shares with one holder of 51.8%. Price to Sales is .61 with a Price to Book of 2.46. There was a dividend paid for three quarters in 2006 but then ended.

Things look good for this year and next for Crawford. It's growing market share and increasing efficiencies for claims. But beware of projections. They assume averages for claims based on previous years. If next year has relative calm, earnings won't be there. Also, the volatility of the stock suggests a patient investor may be able to find a better entry point.

- Company Web site: www.crawfordandcompany.com

- Ted Allrich