The Brothers Gardner spoke at the National Press Club today, with their talk entitled, "Wall Street's Wisdom: Why Fools Can't Bear this Bull". C-SPAN plans to post a downloadable real audio file of the event by 6pm ET at http://www.c-span.org. (The AOL browser does not have real audio capability, so you'll need to listen to it with Netscape.) You can also wait until 6pm ET on Saturday, when C-SPAN airs the tape of the speech.
Pet supply retailer PETsMART reported its earnings today, and MF Debit covers the conference call in a FoolWire. MF Merlin's Economic News today covers the Labor Department's import and export price indices report for April. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. In tonight's Fool on the Hill, MF Templar focuses on Franklin Quest. Enjoy!
Interpoint Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTP)") else Response.Write("(NASDAQ: INTP)") end if %> blew away analyst earnings expectations today, posting $0.37 per share when only $0.22 was expected, and rising $7 5/8 to $22 1/2. The microelectronic component and data storage company reported net income up 145% from the year-ago quarter and sales up 62% -- both records for the company. Chief Executive Officer (CEO) Peter van Oppen noted that sales are growing faster than the company expected, and that net margins have increased accordingly. He said he expected the company's growth rate to continue through the rest of 1996 but that 1997 might see a slowdown.
ForeFront <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FFGI)") else Response.Write("(NASDAQ: FFGI)") end if %> announced today that it intends to buy privately-held BookMaker for $5.7 million in stock. ForeFront is a developer of software for Internet and Intranet applications, while BookMaker is known for software which allows Windows and Internet users to quickly turn documents into booklets. ForeFront President and CEO Dave Sikora explained that, "BookMaker's complementary products, established retail channels and ideal geographic presence stand to solidify ForeFront's market position in many areas." Investors were apparently convinced, sending shares up $4 7/8 to $18 1/2.
Natural Wonder <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NATW)") else Response.Write("(NASDAQ: NATW)") end if %> rose $1 3/4 to $6 5/8 based on the recommendation of the "Financial Research Center", a newsletter based out of Massachusetts. Was the media indulging in a fit of hand-wringing over the potential power of this old-fashioned medium? Did we see confused talk of potential newsletter front-running by any respected market commentators? Are the knives of Business Week and half-a-dozen other financial rags being sharpened to call the proprietors of the "Financial Research Center" and take their comments out of context to make great copy? We don't think so. Nothing against the gang at FRC -- from what we saw of the piece on the Dow Jones wires, it looked excellent, highlighting a potential turnaround in a down-and-out retailer who had its first same store sales gain since 1992 in the fiscal first quarter. The firm estimated $0.38 EPS to $0.40 EPS a share for Natural Wonders this year, which suggests a fair value of $4 to $6 near-term and perhaps higher if they can actually continue to grow.
QUICK TAKES: Fiber optic company OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %> continued its incredible recent run, up $20 to $79 with even the company itself not having an explanation other than "increased awareness". . . Also experiencing an unbelievable run is IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>, up $10 5/8 to $54 on the day after its 2-for-1 split. . . Shares of SYQUEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SQYT)") else Response.Write("(NASDAQ: SQYT)") end if %> continue to surge ahead, rising $3 to $14 5/8 on speculation that the company might be bought out or that it could be "the next Iomega" -- despite some rather significant red marks on its balance sheet. . . EXCEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> continues its volatile behavior, up $2 3/4 to $39 1/2. The company came public only 12 days ago at $15 a share and has been exploding ever since.
Global Village Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GVIL)") else Response.Write("(NASDAQ: GVIL)") end if %> hemorrhaged $4 7/16 to $10 13/16 today. It was only a matter of time before Apple Computer's problems bled into Global Village's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GVIL)") else Response.Write("(NASDAQ: GVIL)") end if %> business. The company, which concentrates mainly on Apple modems and networking, forecast a loss for the next quarter as opposed to analyst estimates of a $0.23 EPS profit. Hambrecht & Quist, also worried, cut its rating for the company all the way from "buy" to "hold", predicting that Apple's recall of its PowerBook 5300 laptops will hurt Global Village PowerPort sales and will adversely affect the company for the next two or three quarters.
Watkins-Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WJ)") else Response.Write("(NYSE: WJ)") end if %> cited lower semiconductor equipment orders this morning when it said it would miss analyst projections for the second quarter and the full year, dropping the shares $5 1/8 to $29 5/8. President and CEO W. Keith Kennedy noted that, "Although it is apparent that business is slower than we would like, the long-term demand for our semiconductor equipment and wireless communications products will continue to grow.
Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> was downgraded by Tom Kurlak of Merrill Lynch from "accumulate" to "long-term neutral". Kurlak's concerns center on the rapid transition of the Asian dynamic random access memory (DRAM) manufacturers to 64 meg chips from the current 16 MEG standard. Although Micron has managed to reduce its cost of manufacture by 20% or so annually over the past few years, the recent 6% to 80% drops in the price of 4 meg and 16 meg chips coupled with the firm's slow move toward 64 meg and higher chips may have caused significant long-term troubles for the company.
QUICK CUTS: ACT NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANET)") else Response.Write("(NASDAQ: ANET)") end if %> slid $3 to $40 1/4 after it filed to offer 3 million share, with 1.49 million coming from current insiders of the company. . . TELXON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TLXN)") else Response.Write("(NASDAQ: TLXN)") end if %> got whacked for $6 7/8 to $19 1/2 today when it reported estimates that came in five cents below estimates after taking out an $0.11 EPS one-time benefit. . . Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> is buying NETWORK EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETK)") else Response.Write("(NASDAQ: NETK)") end if %> in what looks to be a take-*under*, as shareholders of Network will only get 0.1388 shares of Cabletron in the exchange. Network dropped $2 to $10 1/4. . . FTP SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FTPS)") else Response.Write("(NASDAQ: FTPS)") end if %> amended its deal with FIREFOX COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FFOX)") else Response.Write("(NASDAQ: FFOX)") end if %>, getting the provider of Netware TCP-IP stacking software for less money now. FTP Software slid $1 7/8 to $11 3/4 on the news while FireFox got slammed for $2 to $9 1/4.
Franklin's Quest for Value
FRANKLIN QUEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNQ)") else Response.Write("(NYSE: FNQ)") end if %> was thrashed for $4 3/8 to $22 3/8 today based on two high-profile downgrades from big name brokerage analysts. Fran Blechman Bernstein of Merrill Lynch downgraded Franklin Quest to "neutral" from "accumulate", keeping her "long-term accumulate" rating. Smith Barney analyst Keith Mullins slashed his rating on Franklin Quest to "neutral" from "outperform". The irony of these moves is highlighted by the fact that both apparently based their cuts mainly on the company's current valuation -- a problem they apparently solved today with their tag team approach.
Franklin Quest is a Utah-based developer of personal productivity planners that has had a tough time of it over the last few quarters, seeing 20% annual growth dissolve this year due to problems associated with an acquisition as well as heightened competition in the personal productivity market. Competing with Day Runner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DAYR)") else Response.Write("(NASDAQ: DAYR)") end if %>, Day Timer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMB)") else Response.Write("(NYSE: AMB)") end if %> and Mead <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEA)") else Response.Write("(NYSE: MEA)") end if %> as well as some smaller players in the industry, Franklin Quest has distinguished itself by its willingness to explore new distribution channels and its focus on linking planner sales with the seminar experience.
Although Franklin Quest has begun an ambitious expansion of its retail units, the company has historically relied on catalog sales to employees of large corporations where it has established institutional accounts. While Day Runner and Day Timer both concentrate to varying degrees on the discount retail and office supply store channels, Franklin has remained steadfast in its conviction to sell its products through its own catalog or stores. The typical Franklin Quest customer takes part in a seminar on the planner as part of their job and uses the catalog or the store to simply buy inserts, although the company is increasingly getting new converts who simply walk into the retail units and never take a seminar.
Franklin Quest divides its business neatly into retail, training, catalog and product sales. The problem recently has been the training revenues, which have shown anemic growth for the last few quarters running due to an acquisition made last year. The integration of the new staff as well as the changes in the regions each salesperson covers is the reason the company gives for the 5% growth to $17.1 million. Retail stores continue to blossom, up 34% last quarter to $31 million with only two stores added to its current 80-store portfolio. The company sees adding 10 to 12 more over the last three quarters of the year, potentially juicing up revenues here. Finally, catalog sales have stabilized from the introduction of the retail stores last year and have in fact begun to grow, up 18% in the last quarter to $30 million.
The company saw product sales increase 58% to $15.4 million, including $3.8 million from the company's Productivity Plus acquisition. Product sales include Franklin's network marketing sales, Publisher's Press and small wholesale offerings like Ascend and now Productivity Plus. Publisher's Press is the printing press that prints the Franklin Planner refills and Franklin acquired this subsidiary in order to improve gross margins on the planner. Publisher's Press brings in another $25 million-plus in sales per year of lower margin items to outside customers, but this is not a fast-growing part of the business. Productivity Plus is a company Franklin acquired at the end of the second quarter that has been successful in selling datebook-type products to the military, getting in on the PX shelves.
Franklin Quest has been actively buying shares for the last few months, repurchasing 306,300 shares of its common stock at an average price of $18.75 per share in the quarter ended February and 171,200 shares at an average price of $20.39 per share in March. These moves reduced the shares outstanding to about 21.4 million, a 2.3% reduction. Should the company complete its purchase of an additional 1,290,600 shares during the current price weakness, this would reduce shares outstanding an additional 6%. The cash-strong company currently has no debt and cash-flow strong enough to continue its share repurchase program -- a program that was buying back shares in the $22 range last March. Cash flow from operations for the 1995 fiscal year was $40.7 million, about $1.90 per share. With the $35 million cash war chest the company currently sports, retiring the addition 1.3 million shares would not seem to be that much of a problem.
Although long-term it appears that sales growth for the maturing giant is trending down to the 15% region, a mere 15 multiple would put the stock up in the $28 range. Next year's $2.24 EPS estimate would put the stock at $33 and change. Zacks lists the consensus estimates for five-year growth at 19.83% today -- meaning that a 15 multiple might still leave some room for error. Selling at 10 times next year's earnings with strong cash-flow, cash in the bank, high gross margins and a brand name franchise, buying the stock at 10 times next year's earnings estimates might provide some upside if one is willing to stomach the near-term volatility brought on by today's downgrades.
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