It was such a daggone beautiful day at Fool HQ today that we couldn't muster a single special section for you fine folk. Do be sure to take a gander at our Weekend Research Center and check out the latest updates to our Iomega collection. Oh, and before you make your evening plans, be advised that David & Tom Gardner, MF Ben, MF Chiros, MF Robert & MF Czar will lead an auditorium discussion on the Iomega phenomenon. Join the fun at 8pm ET by clicking the big announcement on the Fool main screen.
Personal computer storage device manufacturer Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> surged $2 55/64 to $37 after the company blasted through earnings estimates of $0.11 EPS, reporting $0.16 EPS. Revenues increased to $220 million from less than $50 million a year ago, all on the strength of their Ditto, Zip and Jaz sales. The incremental revenue from the disks for these products should support a revenue stream that could push this company beyond the $1 billion run-rate. Maybe the most amazing part of the news was the retrenchment of CNBC commentators David Faber and Joe Kiernan, who stressed during Squawk Box this morning that they had never said anything negative about Iomega. Searching for a reason behind it all, all Kiernan could muster was the blurting of the phrase, "Motley Fool."
Delta Land & Pine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLP)") else Response.Write("(NYSE: DLP)") end if %> added $4 to close at $46 1/2 today after the Cabot Market Letter recommended the natural resource concern. Cabot has returned an average of 10.2% over the past 15 years (though it trails the S&P 500's return over the same period). The letter is most famous for picks like Presstek <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %>, a volatile and high-flying printing press technology company that has received a lot of attention from the media due to allegations of stock manipulation. (Audited returns for the Cabot Market Letter appear courtesy of Hulbert's.)
Ascent Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GOAL)") else Response.Write("(NASDAQ: GOAL)") end if %> was rewarded $2 1/8 to $17 1/8 after the company announced it would pick up the bleached bones of bankrupt SpectraVision for a little stock and the assumption of debt. The combined entity will provide pay-per-view services to one million hotel rooms nationwide. Ascent is one of those odd creatures valued on earnings before interest, taxes, depreciation and amortization (EBITDA), meaning that Wall Street paid more attention to the $0.39 in EBITDA they reported today and ignored the loss of $0.14 EPS.
QUICK TAKES: J. BAKER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JBAK)") else Response.Write("(NASDAQ: JBAK)") end if %> rose $1 1/4 to $9 1/4 after it signed a letter of intent to sell its Shoe Corp. for an undisclosed price ... PURE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRSW)") else Response.Write("(NASDAQ: PRSW)") end if %> surged $4 3/4 to $41 after the company reported earnings of $0.09 EPS, beating consensus estimates by a penny ... MICROLINEAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MLIN)") else Response.Write("(NASDAQ: MLIN)") end if %> smashed estimates of $0.16 EPS, reporting $0.22 EPS and shooting up $1 3/8 to $ 10 1/4 ... NETMANAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETM)") else Response.Write("(NASDAQ: NETM)") end if %> soared $1 7/8 to $13 1/8 after Boston Group initiated coverage with a "buy" ...
Mass storage device maker EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> lost $1 3/4 to $18 1/2 today after it posted earnings that beat consensus estimates by a penny. The problem? Gross margins--the percentage of revenues that a company has left after they pay all costs of manufacture--slipped to 44%. Most were expecting the number somewhere in the 46% to 47% range, meaning that pricing pressures were fiercer than anticipated. In spite of this, Smith Barney analyst Barry Bosak noted that the company gained market share in both mainframe and open systems product, a feat he called "impressive".
In spite of smashing estimates, Tessco Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TESS)") else Response.Write("(NASDAQ: TESS)") end if %> slumped $4 1/8 to $25 5/8 due to legal wranglings. The company has sued Andrew Corp. for terminating a distribution pact over a disagreement about exclusivity. Andrew wants Tessco to distribute only its wireless communications equipment, meaning that if Tessco refuses it loses the ability to sell any Andrew products. As this could result in significantly reduced revenues for Tessco, the company does appear to have a problem.
Worries about fourth quarter prospects pulled Oak Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OAKT)") else Response.Write("(NASDAQ: OAKT)") end if %> down $1 1/8 to $17 today. The company expressed in the conference call that it had significantly less visibility for the fourth quarter than in prior quarters. The suggestion that blockbuster earnings were not absolutely guaranteed sent investors into a tizzy, causing them to sell shares of the CD-ROM controller chip manufacturer.
QUICK CUTS: RIDE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RIDE)") else Response.Write("(NASDAQ: RIDE)") end if %> dropped $1 3/4 to $11 after the company reported preseason orders for snowboards that were below expectations ... PARK ELECTROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKE)") else Response.Write("(NYSE: PKE)") end if %> tumbled $2 1/8 to $22 1/2, down for the second day in a row after releasing disappointing earnings ... ELECTRONIC ARTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ERTS)") else Response.Write("(NASDAQ: ERTS)") end if %> sagged $2 1/2 to $27 1/4 on what some called "profit-taking", a fancy way of saying "we have no clue but need to sound intelligent" ... IMC GLOBAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGL)") else Response.Write("(NYSE: IGL)") end if %> fell $2 1/8 to $35 1/8 after the company said sales volumes were lower for its phosphate-based fertilizers because of a late spring planting season.
FOOL'S GOLD:
"Just Put 'Net In The Name & Make $100 Million"
The initial public offering (IPO) market has been a blue-white blowtorch burning its elusive promise into the hearts of investors for months. Sizzling debuts followed by tremendous runs or staggering losses have been the norm, with individual investors left to nervously pick their way through this corpse-strewn minefield.
Many investors believe that an IPO allows them an opportunity to "get in on the ground floor" of a new company. The prestige accorded to being one of the original investors in a big winner is significant, and the desire to lord this over one's fellow investors is all to often at the root of the initial purchase. Names like General Magic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GMGC)") else Response.Write("(NASDAQ: GMGC)") end if %>, VocalTec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VOCLF)") else Response.Write("(NASDAQ: VOCLF)") end if %> and Discovery Zone <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZONE)") else Response.Write("(NASDAQ: ZONE)") end if %> should serve as cautionary tales to those who want to navigate these treacherous waters. Despite all the glitz and glamour of big name partners and throttle-down prospects, one should never ignore the bottom line.
New IPOs CompuServe <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> and Planet Hollywood <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHII)") else Response.Write("(NASDAQ: PHII)") end if %> both opened today at substantial premiums to their initial public offering price, though the initial gains slipped throughout the day. Although each offering has its own underlying specifics, the ironic theme was the presence of the 'Net in both names. Despite the fact that Planet Hollywood in actuality has nothing at all to do with online communications, the company does have a lot in common with unbridled investor exuberance that bears no relation to the cruel dynamics of the industry in which it competes.
CompuServe, lately of H&R Block <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRB)") else Response.Write("(NYSE: HRB)") end if %>, is not an initial offering as much as it is a spin-off from the tax preparation giant. After years of trying to find synergies between Block Financial Services and the online service, management finally gave into shareholder pressure and decided that the market could better value both companies if CompuServe was set up on its own. CompuServe issued 16 million shares at $30 a pop, giving the company an initial value of $2.8 billion.
CompuServe most readily compares to wunderstock America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, up more than six-fold in the past 24 months to its current $4.8 billion market cap. With its combination of the CompuServe Information Service and standalone Internet access provider Sprynet, CompuServe at first glance does seem a lot like America Online. The fact that CompuServe's 4.5 million subscriber base includes 2.0 million international members while America Onlines 5.7 million base does not yet account for any international or GNN "eyeballs" is a fact often lost on many Wall Street regulars.
As each shareholder of H&R Block will be given the opportunity to get shares of CompuServe in a spin-off to be held later in the year, H&R Block's $37 1/8 close today includes $25 in CompuServe -- meaning the tax business is selling for all of $12 a share. The smart money that wanted to purchase CompuServe was buying H&R Block today, avoiding the post-offering frenzy and hedging themselves again a post-offering crush. Fair values of CompuServe measured based on subscriber headcount alone still suggest that the company might have some interesting prospects, while Block's 3.45% dividend will carry holders there over the next few months prior to the final disposition of the spin-off.
As for Planet Hollywood, what really can be said? About 11 million shares were priced at $18 a pop, up from the original $14 to $16 spread simply on the strength of retail demand. The company, which beyond its core Planet Hollywood concept also intends to populate the free world with Marvel Mania and Offical All Star Cafe units, stands to dominate the currently popular theme-restaurant business. Whether Cheesecake Factory <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CAKE)") else Response.Write("(NASDAQ: CAKE)") end if %> or Rainforest Cafe <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAIN)") else Response.Write("(NASDAQ: RAIN)") end if %>, investors are beside themselves to get involved with restaurants that serve as quasi-amusement parks, enhancing common fare with uncommon glitz.
Planet Hollywood now has 95.1 million shares outstanding, giving the company a market capitalization of somewhere north of $2.5 billion. A significant premium to the current revenues of the chain, much of this represents a lot of hope that Planet Hollywood management can execute well and populate the known world with all three of their various units. The restaurant business tends to be overtaken periodically with fresh, new concepts. Last time around it was steakhouses, and Outback Steakhouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OSSI)") else Response.Write("(NASDAQ: OSSI)") end if %>, Lonestar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STAR)") else Response.Write("(NASDAQ: STAR)") end if %> and a number of similarly-themed players dominated investor attention. Coffeehouses like Starbucks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SBUX)") else Response.Write("(NASDAQ: SBUX)") end if %> have also remained popular. All represent significant lifestyle changes and point to one core proposition -- if you are going to mess around in a new area, play with a proven winner. All of the secondary issues that were knock-offs of the above have been mediocre at best, while each of the companies quoted above currently stands within arm's length of a 52-week high.
IPOs are a difficult place to invest. The knowledge you have of a company is very minimal, restricted to the prospectus and whatever homework you have managed to do on your own. Mindful of these risks, however, the universal tone of skepticism given is not always completely warranted. As Mary Meeker's Technology IPO Yearbook (available from Morgan Stanley U.S. Investment Research) shows, two-thirds of the IPOs unleashed on the market in 1995 and 1996 did well, some even showing significant gains after the first trade. In the end, much like shorting, IPO investing requires an extra effort that is rewarded proportionally -- investors unwilling to make that effort dive in the deep end at their own risk.
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Byline: Randy Befumo (MF Templar)