PATRICIA ROW
EXECUTIVE VICE PRESIDENT/COO
KENNEDY CAPITAL MANAGEMENT, INCORPORATED

COMPANY: Medallion Financial Corporation
TICKER: TAXI (Nasdaq)
PRICE: $13.03
52-WEEK RANGE: $9.01-$13.85
MARKET CAPITALIZATION: $242.21 million

Patricia Row is an experienced small cap value fund manager and a member of Kennedy Capital’s small cap research team as an analyst for financial services companies and for Real Estate Investment Trusts. Kennedy Capital is based in St. Louis, Mo. Ms. Row spoke with Katharine Herrup of The New York Sun as to why it is a pretty safe bet to invest in the taxicab industry, especially in New York.

What kind of company is Medallion?

Medallion is a specialty finance company that has a niche business in financing loans for taxicab medallions, with the bulk of their business based in New York. The medallion loans make up 67% of the total loan portfolio. Medallion also does some consumer and commercial lending to small businesses – the average loan size is $2 million for short-term money, which makes up the rest of the portfolio.

Why do you like the stock?

Well, first of all, the number of taxicab medallions is limited by law. Each city has a set number of medallions they can issue, and you have to have a medallion in order to have a taxicab. These medallions are like your license to be able to run a taxicab business.New York City represents about 80% of the medallion loans.The whole medallion market is an $8 billion market – $4.5 billion is attributed to New York, $595 million to Boston,$517 million to Chicago,and $56 million to San Francisco.

Overall, it’s a very secure lending business, and the medallion prices have been going up steadily. In November of 2005, the price of a medallion was $400,000 and now it is $450,000. This company finances the cost of the medallion and is not driven by its price, but the collateral of the medallions. Medallion Corporation has never had a default on any medallion loans.

Why did your company purchase the stock?

I bought it because it was a niche business, and we are value oriented in our buy criteria.These guys really know what they are doing. The company became public in 1996, and it began originating and servicing medallion loans in 1979 – at that time they were the leader in the medallion industry.In general, I saw a company that was selling at book value, and I saw them raising their dividend, so I had confidence that their earnings would be going up.

What distinguishes Medallion from other stocks?

We like to get into things that nobody else is getting into. It’s a unique company and often misunderstood. We like that they’re not a lot of analysts covering this stock. It’s also a disciplined company.

What will it take for you to retain the stock?

They need to continue to expand on their loan portfolio. Their loans are up very nicely right now. The company bought back $10 million of their own stock from the market.

What are the risks?

One risk would be if you have another terrorist attack in New York City.The medallion market and the ticker price went down after September 11, 2001.

What companies does Medallion compete with?

There are other banks and lending institutions that do this, but they don’t do it as their main business.