MF Merlin's Economic News today covers the Labor Department's employment report, the Commerce Department's personal income and outlays report, and a leading inflation index estimate. 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 on the Hill, MF Templar focuses on Zenith Electronics, which has been taking the market by storm this week.
Also of note are some new products. Issued everyday around noon, ET, is our Lunchtime News. We're offering a free two-week trial e-mail subcription to it. If you're interested in it, let [email protected] know -- sign up your friends, too! Debuting next week is MF Bogey's Industry Olympics, where he ferrets out the top stocks in a different industry each week. He'll be looking at networking stocks next week, and issuing his report via Fool Fax. For more information and pricing, contact MF Bogey at [email protected] or toll-free at 1-888-FAX-FOOL.
HEROES
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AMX Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMXX)") else Response.Write("(NASDAQ: AMXX)") end if %> beat estimates by a solid two cents today, posting $0.11 per share on earnings up 104%, sales up 31%, and operating income up 125% over the year-ago quarter. And what did the Street think of this? Judging from the 23% increase in share price today, up $1 3/4 to $9 1/4, they were pleased. The company designs and makes control and automation systems for homes, schools, boardrooms, and other environments.
Celeritek <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLTK)") else Response.Write("(NASDAQ: CLTK)") end if %>, a manufacturer of wireless communications products, met analyst estimates of $0.14 per share, but the Street must have been bracing for a letdown, as shares soared $3 1/4 to $14 3/4. The company has been shifting its focus from the defense industry to the commercial sector, and reported that commercial revenues rose a full 114% over the year-ago quarter.
John Alden Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JA)") else Response.Write("(NYSE: JA)") end if %> blew away earnings estimates of $0.30 by a whopping 24 cents today, sending shares up $3 1/4 to $22 3/8. Chairman and Chief Executive Officer Glendon E. Johnson noted that, "Healthcare operating income has improved from a difficult fourth quarter, but margins are not acceptable at current levels. However, we are pleased that our efforts to control expenses are yielding results." The Midwest health insurance concern had been battered in the past year over worse-than-expected earnings, beginning the sell-off in health maintenance organizations (HMOs) in 1995.
It's not clear why, but many of the edu-tainment players had a very good day today. Edmark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EDMK)") else Response.Write("(NASDAQ: EDMK)") end if %> was up $3 1/2 to $29 3/4, a week after reporting a loss of $0.02 per share, which disappointed analysts. The company also noted that its sales of multimedia educational products rose 46% from the year-ago quarter. Broderbund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BROD)") else Response.Write("(NASDAQ: BROD)") end if %> increased $3 1/4 to $48 1/4, a week after Smith Barney initiated coverage with an "outperform" rating. The company said on Tuesday that it is still looking at acquisition targets, after losing The Learning Company to SoftKey <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SKEY)") else Response.Write("(NASDAQ: SKEY)") end if %>. Sierra On-Line, recently bought by CUC International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CU)") else Response.Write("(NYSE: CU)") end if %> shot up $2 1/2 to $42, despite the fact that Fidelity reduced its stake in the company. Finally, Seventh Level <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEVL)") else Response.Write("(NASDAQ: SEVL)") end if %>, which released its new 3-D thriller game "Dominion" on Tuesday, also rose, up $1 to $10 7/8. Perhaps investors are tying growing PC demand to software sales.
QUICK TAKES: . . Pharmaceutical concern CYTRX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYTR)") else Response.Write("(NASDAQ: CYTR)") end if %> saw its shares skyrocket $1 5/8 to $5 7/8 today, and the President and CEO explained only that "We are gratified to see the increase in share price and we feel this move is long overdue." . . . Initial public offerings (IPOs) EDIFY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EDFY)") else Response.Write("(NASDAQ: EDFY)") end if %> and information technology concern WHITTMAN-HART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WHIT)") else Response.Write("(NASDAQ: WHIT)") end if %> started off on the right foot, rising $2 3/4 to $33 3/4 and $3 1/4 to $24 1/2, respectively. . . PC Software developer DATAWATCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DWCH)") else Response.Write("(NASDAQ: DWCH)") end if %> reported record revenues up 32% over the year-ago quarter, and was rewarded, increasing $1 5/16 to $8 13/16. . .Printer-manufacturer KENTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KNTK)") else Response.Write("(NASDAQ: KNTK)") end if %> shot up $2 3/8 to $12 1/8 today, after reporting earning $0.51 per share, compared with only $0.13 in the year-ago quarter.
GOATS
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Bird Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BIRD)") else Response.Write("(NASDAQ: BIRD)") end if %> saw its shares fly South for the summer, getting plucked for $2 1/4 to $4 3/4 when a buyout by privately-held CertainTeed was called off, with few details given. Founded in 1795, Bird makes asphalt shingles and other roofing products for the Northeastern market. Last week the company and several of its executives received subpoenas from the Justice Department, apparently in regard to a matter related to the roofing industry.
Centigram Comm. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGRM)") else Response.Write("(NASDAQ: CGRM)") end if %> imploded today, falling $4 57/64 to $17 63/64 after the company reported that it expects to lose $0.20 to $0.26 EPS in the second quarter on only $24 to $25 million in revenues. The developer of integrated communications products was also cut by Smith Barney from "outperform" to "neutral" and by Montgomery Securities from "buy" to "hold".
A pithy press release from the Nasdaq today caused WellCare Management Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WELLE)") else Response.Write("(NASDAQ: WELLE)") end if %> to tumble $3 3/4 to $9 1/4. The contents of the note? "We will delist you because you have failed to report your last fiscal quarter on time." The -E is added to a Nasdaq company whenever it is exempted from exchange requirements but is still allowed to trade. WellCare is trying to appeal the decision, which means its shares will still trade on the Nasdaq until May 16th. The story here began back in March when a Dr. David Ryon turned over internal WellCare documents to the HMO's auditors, Deloitte & Touche, that showed a pattern of willful financial manipulations that have inflated earnings ever since the company went public. WellCare apparently would issue checks to cover non-existent doctor reimbursements and then move the proceeds off of the expense side of the balance sheet, artificially inflating earnings.
QUICK CUTS: Micro-catheter-maker TARGET THERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TGET)") else Response.Write("(NASDAQ: TGET)") end if %> slipped $5 1/2 to $44 1/2, two days after posting increased earnings, as investors tried to figure out whether or not an acquisition the development stage biotech made this week might decrease its chances of being bought out by a larger firm later. . . PEDIATRIC SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PSAI)") else Response.Write("(NASDAQ: PSAI)") end if %> posted earnings of $0.20, two cents shy of estimates, and paid the price of a $3 3/4 to $21 drop . . . TECHFORCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TFRC)") else Response.Write("(NASDAQ: TFRC)") end if %> beat estimates by a penny, posting $0.11 EPS on record earnings, but falling $1 1/2 to $11. The company provides integrated support solutions for the computer and networking industries. . . ABR INFORMATION SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ABRX)") else Response.Write("(NASDAQ: ABRX)") end if %> plunged $7 1/4 to $54 on no apparent news, but the Fool Newsroom suspects something must be up. . . PRONET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNET)") else Response.Write("(NASDAQ: PNET)") end if %> had its rating lowered from "outperform" to "neutral" by Morgan Stanley today. Despite the fact that it has "net" in its name, shares of the healthcare paging systems developer fell $2 7/8 to $30 5/8.
FOOL ON THE HILL: From Analog To Digital
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You're probably still shaking your head about ol' Zenith <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> more than doubling inside three days. Zenith began the week at $6 1/8 and closed this afternoon at $15 3/4 -- up 157% on the week. Zenith's story beings on Monday at the National Cable Television Association. During a press conference there, Zenith Electronics announced that it would market a cable modem system based on its "HomeWorks Universal" cable modems and the U.S. Robotics Total Control Enterprise Network Hub equipment. The two companies committed to jointly marketing their cable connectivity solution and represent U.S. Robotics's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> first push into the cable market.
The beauty of the Zenith and U.S. Robotics solution is that cable operators can offer their customers the Internet without having to undergo a costly upgrade to two-way technology. Cable systems were originally designed to be one-way channels, pumping signal out to subscriber homes from central locations. Converting the cable lines to support two-way communications would require laying completely new lines and has been an expensive roadblock on the highway to cable connectivity. The Zenith/U.S. Robotics product would support a standard analog modem but can also work with Integrated Services Digital Network, or ISDN modems.
"We are addressing the immediate needs of one-way operators who want to get into the data business today by offering the option of a telco return cable modem product," said Zenith's Network Systems unit president William Luehrs. A telco return option allows the content to be beamed to you via the existing cable system, letting you respond over analog lines. As it is the content being beamed downstream to subscribers that takes up most of the bandwidth, the telco return option for upstream data flow allows some pretty high-speed access almost immediately without anyone being forced to lay new lines. Zenith anticipates selling their first units in about three months and they can make their modems compatible with the U.S. Robotics system.
As if that was not enough, Zenith further revealed on Tuesday that it was teaming up with Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> and Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %> to develop two-way cable modems that would provide an "integrated, end-to-end path for ultra-high-speed data delivery" on cable systems. "Microsoft is the server, Cisco provides the routers and bridges and Zenith the modems," said Zenith president and chief executive officer (CEO) Al Moschner in an interview. Moschner was quoted as saying that he believed this venture would bear fruit by the end of the year. Zenith is also developing a modem that can deliver a maximum of 30 megabytes of data per second in one direction and return 4 megabytes of data in the other.
The market for these services at first glance seems pretty immense. About 92% of all homes in the U.S. have cable lines pass directly by them and 62% of the homes currently subscribe to cable service. With only 10% of all cable systems enabled for two-way data transmission, the Zenith/U.S. Robotics product would serve 90% of cable operators now with the Zenith/Cisco/Microsoft product coming online in time for those who want to make the expensive commitment to two-way systems.
The drawback to both of these innovations is the need for personal computers to have an Ethernet-type card installed into the actual system to be able to connect to the cable. The serial and parallel ports on the back of the computer cannot support the 10 megabyte speeds that are possible if you install the card directly into your computer. Even if the cable company is willing to underwrite the purchase of the card and its installation, the question of who will put it in hangs delicately -- do you want your cable guy popping the top off of your desktop PC? This is not a plug-and-play solution -- the cable companies have some significant service and installation hurdles to overcome in order to implement these products even if they are ready for sale on the timeframe that Zenith has specified.
Zenith is not alone here, either. Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> announced last week that it was ramping up production of its own cable modem product, meaning that the Zenith-Cisco-Microsoft tag-team is not without competitors. Hewlett-Packard has also been busily developing products for this potentially explosive niche. Almost every high profile computer hardware and computer peripheral company is developing a product for this niche. However, the fact that Zenith has U.S. Robotics decidedly in its corner for the one-way product and is using Microsoft and Cisco technology for its two-way products makes for some food for thought.
The conception that Zenith is an old-line television company is not completely without merit, however. Zenith steadfastly refuses to relinquish the color television market, a low-margin, high-volume affair long-ago dominated by the Japanese. Here Zenith seems like the last remaining rear-guard, still fighting a war most gave up on twenty years ago. However, Zenith has reconceived its main Consumer Electronics and Network Systems division with a digital strategy, looking to develop applications for interactive television, digital video disk players, digital and wireless cable, data communication and high-definition television (HDTV) systems. Zenith currently supplies high-speed cable modems to more than 300 cable systems world-wide, meaning that it does have a significant hold on the cable modem market already.
Zenith will not immediately start producing results, however, suggesting that the near-term rise may have been too much, too fast. Zenith posted a loss of $0.56 EPS in the first quarter of 1996, three cents more than the year before, on a moderate decrease in revenues. This loss was actually dampened by the issuance of about one-third more shares. The company's main revenue-generating business is still color television picture tubes. Zenith has lost money every single year since 1985, except for one. The company has been busily restructuring itself since 1993, when it dumped its color monitor business. The company got rid of its power supply operations in 1994, and color video monitors and high-security electronic equipment in 1995.
A major vote of confidence has come from Korean-based Lucky Goldstar Electronics. In November of 1995, Lucky Goldstar bought 36.6 million shares, or 57.7% of the company, for $10 a share. Lucky Goldstar's attention may not have been drawn by all of this Internet stuff, though -- Zenith has a number of patents for HDTV and LG might have just wanted to secure its access to these without getting killed on royalties. The company's color television sales are weighted toward the last two quarters of the year and the company has done about $1.3 billion in revenues per year over the last five, spending an average of about $45 million on research and development. Current book value is listed at about $5 with $169 million in long-term debt outstanding.
All in all, Zenith looks somewhat promising, although the company would have to start generating some booming earnings this year to justify its one-billion market cap. Whether or not they can ramp up to the $200 or $300 million in cable products sales they would need to hit break-even is anyone's guess, given the uncertainty out there about what exactly the cable industry is going to be doing. Unlike most turnarounds, Zenith refuses to shed its low-margin television business -- despite the fact it has reduced costs by manufacturing them with its 13,000 Mexican employees, they are still losing beaucoup bucks and no amount of cost-cutting is going to change this. Can the cable connectivity and digital products save Zenith? To me, it looks like the major beneficiary from the Zenith news is actually U.S. Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> -- up $8 3/8 to $161 3/8 today perhaps on other investors drawing this conclusion as well.
(For those interested in looking further at the company, all of its financials are located out at the Edgar Web site at http://www.sec.gov/cgi-bin/srch-edgar.)
ANOTHER FOOLISH THING: Introducing Fool's Gold!
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In an effort to keep bringing you cutting-edge investing information, even when the market is closed, we're proud to introduce a new weekend product -- Fool's Gold! Debuting tomorrow on the Fool main screen, the weekend magazine will bring you an interview with C|Net columnist Robert Seidman on the online world, a research report on the "Crunchy" sector (health- and nutrition-oriented stocks), the Dow Centennial collection, a featured Fribble, and our old friend, the Weekend Research Center. We're really excited about this new offering, and hope that y'all will have the chance to check it out.