It was another shaky day on Wall Street, amid continued concern about rising interest rates and ensuing inflation. The Producer Price Index increased a little more than predicted, but when food and energy are factored out, the increase is actually slightly below expectations. March's same store sales figures were released and are featured in a Special Section. Orthologic and Westell were up today, and are covered in a FoolWire du jour. Conference call reports are now posted for Alcoa and First Team Sports.
MF Merlin's Economic News today covers the Producer Price Index, February retail sales, and new claims for state unemployment insurance. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on the Evening News screen. In tonight's Investment Perspective, MF Templar focuses on Altera and Xilinx, two chip makers that got bloodied today. Enjoy!
Thermo Cardiosystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TCA)") else Response.Write("(AMEX: TCA)") end if %> was pumped up $12 1/4 to $71 7/8 today after the company announced that clinical trials of its mechanical heart-assist device were begun today. The HeartMate left ventricular-assist system (LVAS) is currently used for patients awaiting a heart transplant, but was implanted for the first time today in a patient who was not eligible for a heart transplant as an alternative to the expensive surgery. If the HeartMate becomes a viable alternative to drug therapy for treating congestive heart failure in the elderly, the potential market is sizable.
Retail sales released today proved a boon for more than a few retail stocks. Woolworth <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> surged $1 3/4 to $17 3/8, breaking last October's $16 high for the first time in months. Hope for a Foot Locker spin-off in conjunction with stronger performance at its other retail units accounts for today's gains. Ross Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROST)") else Response.Write("(NASDAQ: ROST)") end if %> added $3 3/4 to $30 5/8 when it forecast earnings for the quarter in excess of $0.40 EPS -- much higher than consensus estimates of $0.26 EPS. All of the March same store sales numbers can be found in a Special Section available in the upper-right-hand listbox in the Evening News area.
Bone-healing Orthologic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OLGC)") else Response.Write("(NASDAQ: OLGC)") end if %> boosted many a portfolio today, gaining $4 to $28 3/4 after it reported first quarter earnings per share (EPS) nearly double analyst expectations. All that on about a million more shares than analyst estimated made for a pretty great day for Orthologic. The company manufacturers a product which electrically stimulates bone to growth, allowing for difficult "non-union" fractures to heal. Patients only need to wear the device for 30 minutes a day, compared to hours for competing products. Arizona-based portfolio manager Stephen Barnes (MF Yon) stated, "They're just picking up quicker than they expected." Read the FoolWire in the upper-right-hand corner of the News for even more information on the conference call.
Sinclair Broadcasting Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SBGI)") else Response.Write("(NASDAQ: SBGI)") end if %> surged $5 to $32 1/4 after a $1.2 billion acquisition caused its inventory of television stations to rise to 29 and radio stations to soar to 34. The company, which spans 27 markets across the U.S., had run independent TV stations or TV stations that carry the Fox or new UPN networks. With the buy-out of privately-held River City Broadcasting, however, Sinclair adds some CBS and ABC stations to its portfolio, decreasing its concentration on smaller networks. To facilitate the buy, three investors are putting $115 million in Sinclair -- a nice vote of confidence.
QUICK TAKES: BWAY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BWAY)") else Response.Write("(NASDAQ: BWAY)") end if %> got a boost of $1 3/8 to $13 1/2 after it was started by Banker's Trust at "outperform". . . GIANT INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GI)") else Response.Write("(NYSE: GI)") end if %> gained $2 to $15 1/8 after it confirmed earnings will be $0.19 to $0.23 EPS in the upcoming quarter based on increased refining margins. . . Beating earnings estimates by 21%, SAFEWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWY)") else Response.Write("(NYSE: SWY)") end if %> soared $2 to $30 1/4. . . BOISE CASCADE OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOP)") else Response.Write("(NYSE: BOP)") end if %> gained $4 1/8 to $68 3/4 after surpassing estimates. . . CORCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CORC)") else Response.Write("(NASDAQ: CORC)") end if %> surged $1 1/2 to $7 1/2 after more than doubling earnings when compared to a year ago. . . Recently public CHICAGO MINATURE LAMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHML)") else Response.Write("(NASDAQ: CHML)") end if %> doubled its year ago net, rising $3 3/8 to $36 3/8. . . VISIONEER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VSNR)") else Response.Write("(NASDAQ: VSNR)") end if %> soared $1 1/2 to $12 after it introduced a new SCSI adapter that increases scanning speed for electronic scanners.
The Greater China Fund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCH)") else Response.Write("(NYSE: GCH)") end if %> got whacked for $1 5/8 to $14 after it announced a "rights offering". Rights offerings allow a closed-end fund to increase its asset size by letting current investors buy more shares. The fund is issuing 2.4 million shares, enough to attract arbitrageurs who monkeyed with the stock all day. The stock also took a beating because of its exposure to Hong Kong, which was mostly down during today's session.
Earnings anticipation for Acclaim Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AKLM)") else Response.Write("(NASDAQ: AKLM)") end if %> pushed the stock down $1 1/2 to $8 1/2 today, only a few months after the stock hit a $28 5/8 high. Turmoil in the cartridge game industry in conjunction with a dearth of big hits like 1994 and 1995's Mortal Combat and NBA Jam explain the sorry situation the company finds itself in.
Viasoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIAS)") else Response.Write("(NASDAQ: VIAS)") end if %> held a press conference yesterday clarifying the resignation of their newly-hired chief financial officer (CFO). Letting the Street know they had "fired him for cause" did nothing to assuage investor nerves and the stock fell another $3 3/8 to $22 1/8 today. Partner-in-CFO-resignations CellStar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLST)") else Response.Write("(NASDAQ: CLST)") end if %> also continued lower today, down $2 1/8 to $8 5/8 this afternoon when it was halted for "news pending." The press release has not hit the wires yet, but given Viasoft's reaction to clarification it would seem the losses are not over. McDonald & Co. cut the stock to "hold" yesterday after the CFO was let go.
QUICK CUTS: Alex Brown put the kibosh on REGENCY HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHS)") else Response.Write("(NYSE: RHS)") end if %>, causing it to slide $1 1/2 to $9 3/8 after it moved the stock down to "neutral". . . EXOGEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EXGN)") else Response.Write("(NASDAQ: EXGN)") end if %> fell $2 3/4 to $8 1/4 after the company said it would report revenues 10% below current expectations. . . ADAM SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADAM)") else Response.Write("(NASDAQ: ADAM)") end if %> lost $1 to $3 3/4 after it reported investor's should expect "disappointing" quarterly revenues. . . Everen Securities slashed estimates for M-WAVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MWAV)") else Response.Write("(NASDAQ: MWAV)") end if %>, sending the stock down $1 9/32 to $4 3/4 ... Bar-code scanner ZEBRA TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZBRA)") else Response.Write("(NASDAQ: ZBRA)") end if %> fell $3 1/4 to $19 1/4 when it said the first quarter would be ugly
INVESTMENT PERSPECTIVE:
Altera and Other Chips Down Again
When Altera <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> released first quarter earnings over the wires, all looked well. Results of $0.66 EPS were right in line with analyst expectations, meaning that all the grumbling back on March 20th about Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %> cutting back orders must have been overblown. Altera had told analysts back then that Cisco's orders for its programmable logic devices (PLDs) would be up from the prior year but below its original expectations, sending the stock into a fit that left it down at $56 and change. A few days later, when Altera seemed on track to makes its quarter, the stock pushed above $60.
They made their quarter, but the stock still got whacked today. Altera belly-flopped for the second time in three weeks, getting pounded down $12 3/8 to close at $49 1/8. It was not the earnings but comments made by management in the conference call that did it. Daily orders have been dropping from January through March, causing spasms amongst the institutions. All those March warnings about slowing orders suddenly became painfully real. Altera stated it expects its backlog to wane over the coming months. Supply will catch up with demand, lead times will shrink and customers will cut their inventories. The fat days of earnings surprises might well be over, portfolio managers mused.
Altera's programmable logic devices, which are a key part of networking equipment, had been seen as one of the last bastions of strength in the semiconductor industry. The proprietary chips are not easily replaced, making them immune to the commodity swings that dynamic random access memory (DRAM) units enjoy. Expect a few painful quarters of transition and resumption of above average growth, many whispered -- Altera's components are crucial for the Digital World to become reality. This stuff ain't going away forever. One analyst put growth for programmable logic devices at 25% to 30% for calender 1997, double the rate for the overall semiconductor market. But this was the latest chink in the armor for the the mythical "tech sector" -- the PC-centered Street siezed up and sold into the news.
SoundView Financial Group, Alex. Brown & Sons and Smith Barney were among the many downgrading Altera today to "hold" from "buy" or from "strong buy" to "buy", depending on the firm. Alex Brown cut its estimates on Altera for 1996 from $3.00 EPS to $2.72 EPS. Fiscal 1997 took an even bigger cut, down from $4.00 EPS to only $3.25 EPS. FMR Investments, better known as Fidelity, showed its keen timing yet again as it reported only yesterday it had reduced its holdings of Altera to 5% from about 10% two months earlier. Altera's arch-rival Xilinx <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XLNX)") else Response.Write("(NASDAQ: XLNX)") end if %> was crunched for $4 3/8 to $31 3/4 in sympathy with Altera's news.
Semiconductor equipment also got fried today, as PaineWebber analyst Gunnar Miller reiterated his neutral rating on the industry and Goldman & Sachs analyst Joe Moore removed Lam Research from his firm's recommended list. Estimates for the front-end process equipment suppliers were trimmed by 10% or so in 1997, with analysts stressing the companies have failed to reign in their bullish outlook in spite of increasing uncertainty in the industry. Motorola's announcement yesterday that it would cut capital spending plans on top of today's turmoil in programmable logic chips was the last straw for many. Cowen & Co. cut 1997 earnings estimates for Applied materials to $4.60 from $5.25 while it only shaved $0.15 EPS off of its $5.75 estimate for Lam Research.
PaineWebber's Miller was a little more brutal, cutting his already-low 1997 earnings outlook for Applied Materials to $4.50 EPS a share from $5.00 EPS, bringing Lam Research down to $5.35 EPS and Novellus Systems as low as $6.40 EPS. Frankly, a lot of this trimming is starting to look justified, given the uncertainty about capital expansion plans over the next few months. Over the next few years is a different story, but the Street consistently prices stocks for a horizon of expectations of about six to twelve months. Even though many see fiscal 1996 as secure as these companies work down their backlog, 1997 is a big question mark.
Capital goods and capital equipment go through a pretty well-defined business cycle. A glance at the ebb and flow of orders over the past few decades is enough to show that. Although the overall trend is up, the peaks are high and the valleys low. This makes the stocks very difficult to price over a six to twelve month horizon, creating a lot of volatility. For the long term investor, this is opportunity. For the quarter by quarter institutional money management crowd, this is a minefield. If any of these companies can come even near today's adjusted 1997 numbers, they are screaming buys. The uncertainty is ruling the institutional money, though, and will continue to for the coming weeks and months. Fools gaze out a little further, making sensible portfolio additions without overweighting a tulmultuous sector.
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Byline: Randy Befumo (MF Templar)