Fool darling Iomega held its annual shareholder meeting, announced a 2-for-1 split, and rocketed into the stratosphere today, rising over 25%. In response, we've got a Special Section on Iomega, including coverage of the meeting. Another Special Section presents MF Ben's coverage of DVD (Digital Video Disc) technology. US Robotics reported record earnings yesterday and surged today -- more details are included in a FoolWire, and we've also got a transcript of the conference call.
MF Merlin's Economic News today covers U.S International Trade in February, U.S Import and Export Price Indexes for March, and the Mitsubishi Bank/Schroder-Wertheim weekly report on Retail Sales. 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 Fool's Gold, MF Templar focuses on US Robotics. Enjoy!
Digital Equipment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> surged $5 to $60 3/8 after the company reported net income increased 68% over the year-ago quarter. Digital Chairman Robert B. Palmer pointed out that, "This performance is a clear reflection of Digital's progress in its financial turnaround. . . We have produced six consecutive quarters of improving profits on a year-over-year basis. This performance did not go unnoticed, as Cowen & Co. upgraded the company from "buy" to "strong buy". Digital and Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> also revealed that on Wednesday they will announce details of an alliance.
BBN Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBN)") else Response.Write("(NYSE: BBN)") end if %> reported lackluster earnings, but revenues from its Internet operations rose fully 402% over the year-ago quarter, exciting investors and sending shares up $2 7/8 to $29 7/8. Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSCP)") else Response.Write("(NASDAQ: NSCP)") end if %>, another Internet play, was also up, rising $3 7/8 to $61 3/4. Companies which provide Internet connections also had a good idea, with 3Com <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COMS)") else Response.Write("(NASDAQ: COMS)") end if %> advancing $3 1/8 to $44 1/4 and Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %> increasing $4 3/8 to $54 3/8. Sun was upgraded by Morgan Stanley analyst Chris DePuy from "buy" to "strong buy".
Power conversion company Acme Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ACE)") else Response.Write("(NYSE: ACE)") end if %>, after reporting lower third quarter earnings but higher sales, and good prospects for the fourth quarter, could not explain the $2 5/8 to $11 rise in its share price today. Perhaps Wile E. Coyote is buying a lot of shares? Previously-hot Acme shares have slid down a long way from their 52-week high of $38 3/4.
Investors have been re-thinking recent conventional wisdom that growth in the computer market is slowing, and several computer-related concerns benefited from this changing viewpoint today. Shares of Citrix Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTXS)") else Response.Write("(NASDAQ: CTXS)") end if %>, which develops server products for Windows, popped up $8 1/4 to $76 after the company reported records earnings, with revenues up 189% over the year-ago quarter. GT Interactive <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTIS)") else Response.Write("(NASDAQ: GTIS)") end if %>, famous for distributing "Doom", today announced that it has recieved a license from WMS Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMS)") else Response.Write("(NYSE: WMS)") end if %> to publish a variety of Atari next-generation games titles. Atari fans apparently raced to pick up shares of GT Interactive, as its price rallied $1 5/8 to $15 7/8. PC direct-marketer Creative Computers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MALL)") else Response.Write("(NASDAQ: MALL)") end if %> saw its shares jump $1 3/8 to $9 1/4 as investors begin to sense that PC growth isn't slowing as much as previously thought. Dillon Reed analyst Walter Winnitzki called the stock "cheap" and "interesting".
QUICK TAKES: IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> continued its amazing run, rocketing forward $10 5/8 to $51 7/8 after announcing a 2-for-1 split. Shareholders at the company's annual meeting are celebrating . . . WESTERNBANK PUERTO RICO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WBPR)") else Response.Write("(NASDAQ: WBPR)") end if %> rose $3 3/4 to $28 3/4 today, two days after increasing its dividend and declaring a 2-for-1 stock split. . . OLYMPIC STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZEUS)") else Response.Write("(NASDAQ: ZEUS)") end if %> was pounded up $1 3/4 to $13 1/4 today. Last week McDonald & Co. upgraded the company from "buy" to "aggressive buy". . . JENNY CRAIG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JC)") else Response.Write("(NYSE: JC)") end if %> shares swelled $1 5/8 to $11 1/8 after the company reported increased earnings. . . SUPERGEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUPG)") else Response.Write("(NASDAQ: SUPG)") end if %> shares hit a new high, rising $3 to $15 1/2 as its anti-obesity and anti-cancer drugs progressed through FDA hurdles.
Secure Computing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCUR)") else Response.Write("(NASDAQ: SCUR)") end if %> shares scurried downward $5 1/2 to $23 3/4 today, after the maker of network security and firewall products reported a loss of $0.03 per share, compared to earnings of $0.02 in the year-ago quarter. President and CEO Kermit Beseke explained that the company is "investing heavily in product development and marketing to increase our competitive lead and to position Secure Computing as the premiere computer security systems supplier." As the Digital World emerges, issues of security are becoming increasingly important, and this has been a hot sector lately.
The American Medical Association appealed to the consciences of investors today, calling for divestment of shares in the 13 companies and roughly 1500 mutual funds which either manufacture tobacco or invest in it. With their product denounced as "ruinous and enslaving", shares of Culbro Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUC)") else Response.Write("(NYSE: CUC)") end if %> fell $2 1/2 to $54 1/4, but most other tobacco-producers either rose or dropped insignificantly. Investors are apparently not worried.
Reader's Digest voting shares <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDB)") else Response.Write("(NYSE: RDB)") end if %> were condensed by $2 3/4 to $38 3/4 and its non-voting shares <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDA)") else Response.Write("(NYSE: RDA)") end if %> by $3 to $42 3/8 after the company reported earnings down 14% lower than the year-ago quarter, pointing to increased investments in new business, higher paper and postage costs, and a turnaround in the European market. An interesting note is that when companies have separate classes of voting and non-voting stock, the difference in pricing often reflects confidence in the management. If investors have great confidence in management, they won't bother buying voting shares, whereas they will bid up shares of voting stock if they think they need to have a say.
QUICK CUTS: POWERCERV CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PCRV)") else Response.Write("(NASDAQ: PCRV)") end if %> shares fell $1 1/2 to $13 after the company specializing in enterprise client/server solution software reported record earnings, 60% above year-ago levels. . . VTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VTEL)") else Response.Write("(NASDAQ: VTEL)") end if %> dropped $1 1/8 to $10 1/8 after the videoconferencing concern announced that although first quarter revenues increased 51% over the year-ago period, the company lost $0.13 per share, compared to a gain of $0.04. . . Energy and chemical company CABOT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBT)") else Response.Write("(NYSE: CBT)") end if %> warned that it expects its fiscal 1996 earnings to be below those of fiscal 1995, due to weakinging demand in Europe and a near-term slowdown in growth of the US electronics market. Investors sent shares down $3 7/8 to $25 3/4 in response. . . ST. JOHN'S KNITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> shares unravelled $5 to $61 3/4 after Kelly Gray was named as President. Gray has been the company's Executive Vice President and Creative Director. . . ALPINE LACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LACE)") else Response.Write("(NASDAQ: LACE)") end if %> shares fell $1 1/8 to $5 1/2 after Oppenheimer & Co. downgraded the company from "outperform" to "market perform". The maker of non-fat cheese has been very hot in the past, attracting "crunchy" investors eager to find health-food stocks. . . Thinly-traded LOGIC WORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LGWX)") else Response.Write("(NASDAQ: LGWX)") end if %> benfited from a positive write-up in Investor's Business Daily's "New America" section, rising $3 1/4 to $21 1/4 on six times normal volume.
FOOL ON THE
HILL:
US Robotics
While the movement of stock prices over the short term is a guessing game that requires mastery of smoke, mirrors and investor perception, what plays out over the longer term is a contest of understanding. Those who come to know the realities for a particular company can foresee the inevitable earnings stream that springs from more business, slaking their thirst for profit. Those that do not "get it" at best miss out and at worse see short positions turn against them. When a transformation is really happening, the gulf of opinions can be massive. What some perceive as legitmate valuation others decry as hysteria.
Regardless of what you hear, the surge in US Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> over the past twelve months has nothing to do with hysteria. Although glancing at the 52-week low of $33 1/2 after taking a gander at today's close of $151 might make you think "hype", the real movement behind US Robotics's share price has been the odd combination of a company in the midst of profound change and the emerging importance of "brands" in what was once "technology"-space.
A few weeks ago in a series called "Technophrenia", I outlined why I believe the very notion of a PC-centric "technology" sector is completely bankrupt. No company illustrates this more than US Robotics, a company that has gone from being the low-cost provider of a commodity hardware product to a bonafide networking equipment concern going toe-to-toe with specialized players in the connectivity industry like Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %> and Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %>.
Once upon a when, a modem was just another peripheral you slapped onto your primitive Apple- or DOS-based personal computer. The World Wide Web was a figment of some scientist in Sweden's imagination. Online services like America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, were tiny archipelagos, so insignificant that a newly-appointed president of America Online named Steve Case could claim in 1991 that America Online would not seek out advertising or online shopping revenues "for the forseeable future ..." The modem was just a gadget that made your telephone line turn into a gateway to primitive communications services.
Look at modems now. With 50% of the installed base at 9600 baud or lower, and more sophisticated modems that seemlessly integrate complicated software required to partake in the information revolution, the business has changed. Whether desktop or PC-card based, modem sales are surging, up 22% for US Robotics from the first quarter to this quarter. With their preeminent brandname and their leverage as the largest manufacturer of modems in the world, the company has gotten access to components when times were tight and kept pumping product into the sales channel, driving revenues ever higher.
The most significant part of US Robotics's growth has nothing to do with modems, though. It has to do with hubs -- the "total control" hub to be exact. A hub is the device you connect to whenever you go online. It aggregates a number of individual customers, allowing the online service to efficienctly distribute information. US Robotics holds a whopping 55.4% of this market right now -- more than twice what their leading competitor, Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %> has. Furthermore, they have integrated Windows NT into their total control hub in order to allow users to situate a server at the edge of a network, enabling remote access in a much more efficient way than previously possible.
Those who have made money in US Robotics, with the possibility of a few short-term traders here and there, are the ones who have understood all along the implications of the Digital World. US Robotics products dominate two crucial segments of the connection chain. The desktop and PC-card is purchased and installed by the consumer, while the aggregating hub is bought by network providers like America Online/ANS, CompuServe, Netcom On-Line and dozens of others. Rather than the personal computer being a stand-alone device, it is becoming just another link in this chain with all of the profits migrating to those who dominate higher positions.
With $1.10 EPS this quarter, US Robotics has a run rate of $4.40 EPS -- making the $3.89 EPS most were expecting for the quarter start to look a little low. Most analysts were not expecting earnings this high until the fourth quarter, suggesting that US Robotics is two quarters ahead of plan. With the Matterhorn architecture dramatically reducing costs for their modem products, US Robotics has even been able to cut costs on its products to distributors by about 34% while still improving their margins.
If the company can maintain the quarter-over-quarter momentum most had anticipated for the year, then $4.41 EPS looks doable for fiscal 1996 and $5.69 EPS is more than possible in 1997. That would be 30% growth year over year while the company trades at only 26 times that estimate. That said, US Robotics is a volatile stock -- much like Iomega, a significant change has happened. The full import of the change has yet to materialize, meaning that the disagreement about it will show up in the volatility of the price. In the end, keeping a close eye on US Robotics and salting away volatile shares when the company hits a bump would seem to be the best approach.
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