Today Fooldom features coverage of Dayton-Hudson's post-earnings conference call, as well as an update on carbon fiber-maker Zoltek, with a synopsis of a phone conversation between MF Boring and Zsolt Rumy. We also have a special Fribble section on lessons to be learned from Crazy Eddie Antar, whose management practices were IN-SANE!!!
MF Merlin's Economic News today covers the results of today's Federal Open Market Committee meeting and Mitsubishi Bank/Schroder-Wertheim's latest 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. In tonight's Fool on the Hill, MF Templar focuses on SyQuest. Enjoy!
Republic Industries spin-off Republic Environmental Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RESI)") else Response.Write("(NASDAQ: RESI)") end if %> doubled today, soaring $10 1/4 to $20 1/4 on news that the company had transferred majority ownership to another company and that Wayne Huizenga had invested over $5 million in the company. Republic is merging with the Century Surety Group of the Alliance Holding Corporation.
Cross Timbers Oil <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XTO)") else Response.Write("(NYSE: XTO)") end if %> announced today that it is increasing its development budget for 1996 by 60% and that it will also repurchase roughly 11% of its outstanding shares. The company cited improving commodity prices and strong corporate performance as reasons for the budget increase. Last month Cross Timbers reported first quarter net income three times higher than in the year-ago quarter. Shares today rallied $1 5/8 to $21 3/8.
PSC Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PSCX)") else Response.Write("(NASDAQ: PSCX)") end if %> has committed to buying the Data Capture Group of Swedish-based Spectra-Physics AB for $140 million, which boosted the shares $1 39/64 to $11 3/4 after the company said this would increase annual revenues to $115 million from $87.5 million last year. PSC President and Chief Executive Officer (CEO) L. Michael Hone added that, "The acquisition of Spectra gives us the broadest line of handheld and fixed-position laser bar code readers of any manufacturer in the world. As a result, PSC becomes the only company that can address all bar code reading needs throughout the retail supply chain."
QUICK TAKES: HOWTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HOWT)") else Response.Write("(NASDAQ: HOWT)") end if %> shares rose $1 1/4 to $5 5/8 after the company's Scanmaster (TM) 2500 large-format flatbed scanner was awarded a "best buy" rating by MacUser magazine. . . Also returning home trophy-laden is VTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VTEL)") else Response.Write("(NASDAQ: VTEL)") end if %>, up $2 3/8 to $12 5/8, which received three industry achievement awards at the International Teleconferencing Association (ITCA) conference. . . OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %> couldn't explain its stunning $10 to $59 increase in share price today, except to point to increased awareness of the fiber optic cable company and recent coverage in the financial media. . . COMPUWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CPWR)") else Response.Write("(NASDAQ: CPWR)") end if %> was upgraded from "hold" to "buy" by Hambrecht & Quist today, causing the computer peripherals manufacturer to surge $6 5/8 to $37 1/8. . . Specialty women's clothing retailer GANTOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTOS)") else Response.Write("(NASDAQ: GTOS)") end if %> rose $1 5/16 to $6 3/8 after reporting a 242% increase in profits from the year-ago quarter. . . Montgomery Securities started coverage of the HOME SHOPPING NETWORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HSN)") else Response.Write("(NYSE: HSN)") end if %> with a "buy" rating, driving shares up $1 1/8 to $15. . . GUCCI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GUC)") else Response.Write("(NYSE: GUC)") end if %> rose $5 1/4 to $70 7/8 after reporting sales up 113% over the year-ago quarter. . . NAVARRE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NAVR)") else Response.Write("(NASDAQ: NAVR)") end if %> continued its rise, up $4 1/4 to $21 3/4 today, after its 50% stake in Net.radio Network, an Internet radio company, became public knowledge.
ImClone Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IMCL)") else Response.Write("(NASDAQ: IMCL)") end if %> announced results of its phase Ib/IIa study of C225, an epidermal growth factor receptor (EGFr) antagonist, which inhibited the growth of cancer in seven of seventeen patients. Investors must have been hoping for more resoundingly-successful results, as shares fell $2 1/8 to $13 7/8 in response.
Investors were similarly unimpressed with Kensey Nash's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KNSY)") else Response.Write("(NASDAQ: KNSY)") end if %> re-launch of its Angio-Seal product in Europe, as shares slumped $1 13/16 to $13 1/4. The collapse of a factory roof due to January snow is what delayed the marketing of the product which seals arterial punctures. The product is designed to save time and increase comfort in patients after cardiovascular catheterization -- a procedure which is performed some six million times per year around the world. President and CEO Joseph Kaufmann noted that. "Physicians who have used the product in the past are enthusiastic about its return."
QUICK CUTS: Goldman Sachs initiated coverage of i2 TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ITWO)") else Response.Write("(NASDAQ: ITWO)") end if %> with a "moderate outperform" rating. Investors were apparently hoping for something more enthusiastic, as shares fell $6 1/4 to $48. . . PAR TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTC)") else Response.Write("(NYSE: PTC)") end if %> dropped $1 3/8 to $17 1/8 on news released last night that the company's chairman would sell 1.2 million shares in a 2.8 million share offering. . . STEWART & STEVENSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SSSS)") else Response.Write("(NASDAQ: SSSS)") end if %> dropped $1 3/4 to $26 after reporting earnings of $0.20 EPS -- quite a bit below the consensus estimates of $0.41 EPS for the industrial concern.
SyQuest Silliness
SYQUEST TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYQT)") else Response.Write("(NASDAQ: SYQT)") end if %> IS A Fremont, California-based maker of removable storage devices whose EZ-135 drive has been pushed as a legitimate competitor to Iomega's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> Zip drive. Many who view themselves as latecomers to the "Iomega Party" are clambering onto the shares as a way to play on the success of removable storage in a way that they believe might have been overlooked by the Street. In an ironic, reverse parody of what has come to be known as the "Iomega Story", SyQuest surged $2 1/8 to $11 5/8 after a similar rise yesterday merely on unschooled talk in print, on the phone and online that somehow the EZ-135 is a good product.
THE CORE OF THE IOMEGA STORY was consumer research. People who bought the Zip drive and found it to be an excellent product started to look over Fooldom's most famous stock early in 1995 and began to debate the relative merits. The most common comment about SyQuest? Shoddy products that many were forced to buy because they had no real alternative. Specific comments about the EZ-135? In the words of one Washington-based radio commentator, "it sucks". Tune into the message board and you will see a litany of complaints about the product that is causing investors to jump in today.
CAUGHT WITH ITS PANTS DOWN LATE LAST YEAR by the rapid consumer adoption of the Zip, SyQuest managed to squeeze out the EZ-135 after a few hasty weeks of development. The company's research and development department essentially slapped a hard-drive into a plastic case and called it removable storage. SyQuest EZ-135 disks are very fragile as a result, much like your hard-drive. The slightest bump or speck of dust could render the entire back-up worthless, negating the very reason why many users buy removable storage devices in the first place.
SYQUEST IS A COMPANY IN SERIOUS FINANCIAL TROUBLE. In the last reported quarter, the company had a net loss of $51.1 million on revenues of $47.4 million. Revenues decreased from the same period a year ago by a whopping 38%. Ponder all that for a moment. SyQuest essentially lost more money than they had in revenues because they were selling the EZ-135 at a loss in order to be able to compete with Iomega. And even that did not enable them to compete very well.
CASH-FLOW CRUNCH IS A' COMING. The company clearly stated that they did not expect a return to profitability in the next quarter, even after they slashed 1500 people from the payroll. Despite the train-wreck on the profit and loss statement, SyQuest's sales, general and administrative expenses *increased* 32.6% in the quarter to a whopping 30.2% of net revenues. The company has been forced to retain Needham and Company to assist it in evaluating a debt or equity offering to fund itself. Major suppliers are willing to make payment arrangements that convert debt to equity, but this will dilute the current shareholders' stake. Cash decreased to $7 million in the quarter from $27 million in the prior period, while inventories exploded by 20%. Accounts payable blossomed by almost 100%, leaving the company with negative working capital.
LET'S BE CLEAR ABOUT THE DIRE FINANCIAL SITUATION. Last quarter's problems wiped out all accumulated shareholder's equity. The company has no book value, showing a deficit of $1.5 million after the disaster that was Q2. And Q3 apparently is not going to be much better. Negative working capital, dwindling cash reserves, product piling up in the company's inventories, massive accounts payable that could be converted into equity, diluting the value of current shareholders -- this is a major disaster in the making here.
WHY ARE INVESTORS JUMPING IN? In the mindless search for the "next" whatever, it appears a substantial group of investors have latched on to SyQuest as the Great White Speculation for their portfolio. From a Foolish fundamental perspective, it looks like an enormous mistake. UnFoolish investors scanning the markets with a mind toward opportunities lost and not the new opportunities to be had tend to jump on "also-rans" -- the companies that seem to be in the business of a winning stock. These companies tend to be disasters, as Peter Lynch has aptly noted in his first two books on investing. Fools would be well advised to take that advice to heart when examining the shares.
Fools on TV!
Yes, it's another Fool-sighting opportunity! You've seen the brothers Gardner on the cover of Fortune and in People magazine. You've heard them on the radio, and have read their fine book (right?). If you haven't had a Fool fix in the past few days and you're experiencing withdrawal symptoms, you might want to tune in to C-SPAN tomorrow. David and Tom Gardner will be addressing the National Press Club in Washington, D.C. and the event is scheduled to be carried live by C-SPAN from 1pm to 2pm ET (unless Congress is in session, in which case it will be shown later). So set those VCRs! The event should also be carried by National Public Radio -- contact your local station to find out when.
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