Boring Portfolio Report
ANN ARBOR, Mich. (Oct. 15) -- What interesting times: the Yanks are going
to World Series, the Dow cracks 6,000, and Madonna and child are resting
comfortably.
Small wonder, then, that traders got a bit carried away with themselves this
morning.
The S&P 500 opened 4 points above where it closed Monday. The Dow rocketed
34 points in a matter of minutes; for a while it looked like 6,100 might
be staring us in the face. Meantime, the Nasdaq opened 11 points above Monday's
closing level and leaped ahead 26 points (roughly the equivalent of 125 Dow
points) without pausing for breath.
All this was occurring as I was placing my buy order for the Boring Portfolio's
100 shares of Solectron. Displaying my near-legendary intra-day timing skill,
I once again top-ticked a Borefolio buy, managing to acquire SLR at my own
"special" price of $54 1/4.
Solectron ended the day at $53 3/4, up a dollar. Of course, a half-point
one way or the other hardly matters in the scheme of things. Just once I'd
like to pick up a stock at an intra-day low, though, just to see if it's
possible. Heck, at least you can't say that we're getting a better deal on
the stock than you are.
Anyhow, once the market had verified that Boring had made his purchase, traders
promptly sold into the morning rally, apparently attempting to square some
positions prior to Wednesday's monthly report on consumer prices. The Nasdaq
managed to hold onto a sliver of its early gains, closing up 0.14%. But the
Dow and the S&P 500 gave it all back and more -- the Dow finishing with
a 5-point loss, and the S&P off 1 (-0.14%). Trading was active, with
more than 460 million shares changing hands.
As for the Borefolio, it would have posted a small gain for Tuesday had it
not been for the Solectron transaction. As it is, the Boring basket lost
$68.11, or -0.12%.
A quick note to folks who follow Borefolio, uh, action via the WWW: Last
Friday's Boring recap was re-posted mistakenly as the Monday recap last night.
The error was corrected earlier today. But if you missed the correction,
please feel free to click into the Boring archives to retrieve Monday's report.
There's a slew of Cisco news to report. A number of networking stocks closed
lower today, presumably in sympathy with Bay Networks, which posted weak
results last night. Cisco, I'm pleased to report, managed a $ 3/4 gain.
Yesterday, Cisco announced it would be purchasing the remainder of Netsys
Technologies it did not already own. The transaction would involve a stock
deal worth about $79 million. Netsys develops software to debug and monitor
the performance of computer networks. Cisco said the acquisition will give
its customers the "ability to simulate their network design in order to optimize
capacity and performance." Cisco expects the acquisition to result in a charge
against earnings of five to six cents a share in its fiscal second quarter.
In a separate press release, Cisco said it had rescinded its stock repurchase
program because of uncertainty over recent SEC accounting policies. Other
technology firms have taken similar action recently for the same reason.
Cisco said that, in any event, it had not repurchased any shares since April.
Cisco also announced the FastHub 300 Series of manageable, stackable Fast
Ethernet hubs, available later this month at estimated street prices from
$125-240 per managed port, depending upon configuration. Supporting 100-Mbps
peak and aggregate throughput, this new device combines "ten times the
performance of traditional Ethernet hubs with unmatched flexibility,
manageability and resiliency to support customers' high-speed workgroup
applications and server connectivity requirements." Cool.
Cisco will be reporting its 1Q:97 earnings on November 5. Analysts are expecting
EPS of $0.46, which would constitute a cool 64% gain over last year. Revenues
should come in somewhere around $1.4 billion.
Last Friday, I reviewed the first four Borefolio holdings, taking them in
alphabetical order. Our newest purchase, Solectron, is reviewed in detail
in its own Borefolio "buy" report. That leaves Oxford Health, Prime Medical
Services, the Spiders, and Texas Industries.
In the space (and time!) remaining tonight, I'll hit the highlights on Prime
Medical. I picked PMSI because it's scheduled to report quarterly earnings
one day next week. Tomorrow, I'll review TXI, which held its annual shareholders'
meeting today.
PMSI is the largest and perhaps the fastest growing provider of lithotripsy
services in the U.S. Lithotripsy, Borefollowers recall, is a non-invasive
procedure for the busting of kidney stones. The procedure is typically performed
on an outpatient basis, eliminating the need for lengthy hospital stays and
extensive recovery periods associated with surgery. It's also highly effective.
The Company has an economic interest in 49 mobile and six fixed-site
lithotripters in 31 states. Those stone busters performed approximately 17%
of the estimated 180,000 lithotripsy procedures performed in the U.S. last
year. The company provides lithotripsy services at approximately 400 hospitals
and surgery centers and has over 200 contracts with managed care organizations.
PMSI's lithotripsy revenues have grown from zilch in 1991 to $22.2 million
in 1995. Analysts are expecting revenues in excess of $71 million for 1996.
The huge jump is due largely to the company's Jonah-eats-whale acquisition
of Lithotripters, Inc. in April 1996, for $86.0 million. The President of
Lithotripters, Inc. at the time of the acquisition, Dr. Joseph Jenkins, became
the President and CEO of PMSI.
EPS comparisons for PMSI can be misleading going forward, because the company
will virtually use up tax-loss credits this year. The latest First Call lists
EPS consensus projections of $0.65 for 1996 and $0.74 for 1997. That would
work out to an okay, but uninspiring, 14% annual gain. On a fully-taxed
apples-to-apples basis, however, the 1996 figure works out to around $0.45.
Hence, year-over-year EPS growth going forward (fully-taxed) is expected
to be more on the order of 60% or so.
Over the longer run, analysts forecast a CAGR in EPS of 25 to 40%, assuming
PMSI can continue to execute successfully its strategy of accumulating additional
lithotripters in the highly fragmented market as well as adding revenue streams
from related services, such as marketing its extensive database, managing
urology offices, or possibly advancing into gall stone lithotripsy or other
new procedures.
Using the low-end multiple of 25 and attaching that to the FY97 estimate
of $0.74, I come up with a target price of $18 by mid-summer '97. PMSI stock
has already visited that neighborhood earlier this year, and it seems entirely
plausible that it can move back to there in due time.
One last note: in recent years, PMSI issued shares of stock to owners of
various lithotripters the company acquired. Those shareholders originally
intended to sell their 2.3 million shares as part of a larger secondary offering
that had been scheduled for this summer but which was since canceled. Late
last month, those shareholders registered notice that they intended to sell
those shares from time to time. None of these folks are company "insiders."
The day after the notice was filed, the stock dropped a dollar. It has since
recovered nicely and held steady in the $13 to $14 range. I take that as
a good sign. As those shares come onto the market, they may exert some transitory
pressure on the share price (or may have already). On the other hand, should
PMSI's earnings continue to track with expectations, there should be no shortage
of folks willing to buy up those shares.
In recent months, PMSI has acquired a decent following among institutions.
The stock is now covered by six analysts, and in the past 60 days their
collective rating on the stock has gone from 1.8 ("buy") to 1.6 ("buy" to
"strong buy") to 1.3 ("strong buy"). That sounds about right to me.
Have a great night.
Transmitted: 10/15/96
Tuesday, October 15, 1996
BGP + 1/8 ...CSL -1 1/8 ...CSCO + 3/4 ...GNT - 1/8
OXHP + 7/8 ...PMSI ---...SPY - 1/32...SLR - 1/2 ...TXI - 3/8 ...
*Scroll down or expand screen for full portfolio accounting
Day Month Year History
BORING -0.12% -1.20% 15.00% 15.00%
S&P 500 -0.14% 2.22% 13.02% 13.02%
NASDAQ +0.14% 2.54% 20.86% 20.86%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gro 22.51 34.38 52.69%
3/8/96 400 Prime Medic 10.07 13.00 29.11%
2/2/96 200 Green Tree 30.39 39.13 28.75%
6/26/96 100 Cisco Syste 53.90 65.88 22.22%
7/23/96 100 S&P Deposit 64.15 70.41 9.75%
8/13/96 100 Carlisle Co 52.65 56.50 7.31%
1/29/96 100 Texas Indus 54.50 55.75 2.29%
5/24/96 100 Oxford Heal 48.02 48.00 -0.05%
10/15/96 100 Solectron C 54.52 53.75 -1.42%
Rec'd # Security Cost Value Change
2/28/96 200 Borders Gro 4502.49 6875.00 $2372.51
2/2/96 200 Green Tree 6077.49 7825.00 $1747.51
6/26/96 100 Cisco Syste 5389.99 6587.50 $1197.51
3/8/96 400 Prime Medic 4027.49 5200.00 $1172.51
7/23/96 100 S&P Deposit 6414.99 7040.63 $625.64
8/13/96 100 Carlisle Co 5264.99 5650.00 $385.01
1/29/96 100 Texas Indus 5449.99 5575.00 $125.01
5/24/96 100 Oxford Heal 4802.49 4800.00 -$2.49
1/29/96 100 Solectron C 5452.49 5375.00 -$77.49
CASH $2573.46
TOTAL $57501.59