Intuit beat analysts' estimates by a penny today (before a one-time charge for an acquisition). We'll be offering a Special Section on it, including a look at the announcement and the future of the company. Today's Lunchtime News revisited CAI Wireless.
MF Merlin's Economic News today covers the Gross Domestic Product, new home sales, and unemployment claims. 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 takes a look at Intuit. Enjoy!
A front-page Investor's Business Daily article that led off with discussion of Iomega caused some market ripples today, most notably GENUS INC.'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GGNS)") else Response.Write("(NASDAQ: GGNS)") end if %> $2 1/4 rise to $12. Michael Murphy of California Technology Stock Letter fame (55.3% one-year return, 20.3% ten-year return) pumped up Genus, saying that its cutting-edge ion implant equipment will cut 10% to 15% off of the costs for sophisticated computer chips. Genus, however, has disappointed estimates the last three times running and has a standing policy of not allowing individual investors access to crucial information, relying on a coterie of anointed sell-side analysts to disperse information. SYQUEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYQT)") else Response.Write("(NASDAQ: SYQT)") end if %>, up $7/8 to $10 3/4, also might have gained today because of speculation by Murphy that Seagate Technology or Storage Technology might be looking to get in the removable drive business -- a speculation SyQuest at least has flat-out denied.
STRATUS COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRA)") else Response.Write("(NYSE: SRA)") end if %>, a manufacturer of fault-tolerant computers, jumped $1 7/8 to $30 1/4 today after the company received a nod from Morgan Stanley. Analyst Steven Milunovich raised shares to "outperform" from "neutral", notching up his estimates for this fiscal year to $2.90 EPS from $2.60 EPS. Milunovich's $36 price target assumes the company can trade at 12 times his estimates next year -- and that it makes his numbers. The company's fault-tolerant products are becoming increasingly vital in online communications networks and Milunovich apparently believes the company's turnaround is accelerating of late.
THOR INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THO)") else Response.Write("(NYSE: THO)") end if %> went out on a limb today and forecast significant profit growth over the next 12 months, pushing the stock up $1 1/2 to $21 1/8. The manufacturer of recreational vehicles and buses has suffered through three "down" quarters and believes a turnaround is in progress. At the very least, it will have pretty easy comparisons over the next few quarters given its horrid performance. With the lone analyst left covering the stock looking for $1.85 EPS next year, if Thor really can perform, it might manage $2.00 EPS or $2.10 EPS, meaning a ten to twelve multiple would put it in the $20 to $25 range.
Ever-volatile EMPLOYEE SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESOL)") else Response.Write("(NASDAQ: ESOL)") end if %> popped up $3 3/8 to $29 1/8 after finalizing the acquisition of Ashlin Transportation Services yesterday. Ashlin is expected to add annualized revenues of approximately $48 million to Employee Solution's employee leasing business. With $209 million in trailing revenues, this would imply that this acquisition could increase revenues over the next twelve months by 15% to 20% over what had been. If Employee Solutions can maintain the same margins as it has in its current portfolio of businesses in this new acquisition, this implies fiscal 1997 could show as much as $1.20 EPS to $1.25 EPS, giving a conservative price target of $36 to $37 1/2.
QUICK TAKES: Engineered polymer manufacturer FURON CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCY)") else Response.Write("(NYSE: FCY)") end if %> rose $2 3/4 to $24 7/8 today after beating consensus estimates of $0.40 EPS by ten cents today... RALCORP HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAH)") else Response.Write("(NYSE: RAH)") end if %> popped up $2 1/4 to $24 3/4 on speculation that it might sell off some assets... FLEETWOOD ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLE)") else Response.Write("(NYSE: FLE)") end if %> rose $2 3/8 to $30 after it reported that it would buy back as much as 25% of its outstanding stock in a Dutch tender action... INTERNATIONAL GAMING TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IGT)") else Response.Write("(NYSE: IGT)") end if %> rose $1 to $16 3/8 after announcing two joint ventures yesterday... SAFETY-KLEEN popped up $1 3/8 to $17 after it backed estimates of $0.22 EPS to $0.24 EPS for the quarter... TECHNICAL PRODUCTS & CHEMICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCPI)") else Response.Write("(NASDAQ: TCPI)") end if %> soared $1 3/4 to $12 after it announced a 15-year license for a one-step University of Kansas test for systemic lupus erythematous, an auto-immune disease that is very difficult to diagnose.
ASYST TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASYT)") else Response.Write("(NASDAQ: ASYT)") end if %> got whacked for $4 1/2 to $24 today after warning of a shocking fourth quarter loss of $0.50 EPS. The manufacturer of SMIF environment automated semiconductor fabrication equipment apparently has had some customers that have been driving it crazy, as most of its costs come from writing off some accounts receivable that the company now views as uncollectible. The write-off of the accounts receivable puts a bit of a crunch on working capital, although the company still has about 25 cents of working capital for every dollar of market value. Given the continuing integration of Asyst SMIF products and Tencor and PRI Automation products, an acquisition is not entirely out of the question -- especially considering that PRI Automation was going to make an offer for the company last year.
BORLAND INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BORL)") else Response.Write("(NASDAQ: BORL)") end if %> was mashed today, falling $3 3/4 to $13 3/8 after the company announced that acceptance for its Delphi object-oriented programming product was much worse than expected. The company has been a rumored acquisition target of NOVELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NOVL)") else Response.Write("(NASDAQ: NOVL)") end if %> because of just this piece of software -- something that becomes much less likely given the lousy market acceptance. Estimates of $1.03 EPS for next year are probably bound to come down given this bleak news, suggesting that even if the company can manage 10% to 15% growth, it might be even be overvalued here at $13 and change. OPEN ENVIROMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OPEN)") else Response.Write("(NASDAQ: OPEN)") end if %>, which is to be bought out with Borland shares, dropped $1 3/8 to $6 1/2 on this price decline.
QUICK CUTS: DATA GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DGN)") else Response.Write("(NYSE: DGN)") end if %> dropped $1 1/4 to $13 3/8 today after Steven Milunovich of Morgan Stanley cut his rating on the shares... STORAGE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %> CEO David Weiss forecast a 35% price decline for direct access storage devices (DASD), causing a $3 1/8 decline in the stock's price to $32 1/8... INSITUFORM TECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INSUA)") else Response.Write("(NASDAQ: INSUA)") end if %> fell $3 1/8 to $9 1/2 after it announced it was not "comfortable" with $0.55 EPS to $0.65 EPS estimates... SPECIAL DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SDII)") else Response.Write("(NYSE: SDII)") end if %> slumped $3 3/4 to $20 after the company missed its second quarter estimates... Hambrecht & Quist cut SPECTRIAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPCT)") else Response.Write("(NASDAQ: SPCT)") end if %> estimates today, dropping the stock $3 1/8 to $17 7/8.
A Brief Intuit Interlude
[Due to unforeseen circumstances here at Fool HQ, our series on valuing conglomerates has been briefly interrupted due to time constraints. We will resume this action-packed thriller tomorrow and regret any inconvenience.]
Intuit reported earnings of $0.14 EPS yesterday before a one-time charge relating to the acquisition of Interactive Insurance Services. The company's revenues increased 30% to $136 million, giving the company a little more than half a billion in trailing earnings. Operating margins slipped in the quarter as they continued to ramp up service and support functions for their emerging online financial services and tax products.
Let's look for a minute at the value of just the franchise inherent in Intuit. Who is number one in personal tax software? Intuit. Who is number one in personal finance software? Intuit. Who is number one in tax preparation software? Intuit. Who is number one in small business accounting software? Intuit. Who will soon be number one in online financial services and online banking if they hit their subscriber projections for the final quarter of their fiscal year-end? Intuit.
What kind of value can be put on a franchise? The first thing that springs to mind is the value an acquirer might find. When Microsoft made its bid for Intuit a little over a year ago, they offered a split-adjusted $40 per share. It is also important to realize that when Microsoft made this offer Intuit had not even started the Intuit Financial Services unit that offers its most exciting growth prospects going forward. Intuit's accounting software unit and Family Lawyer products had also not really come to fruition when Microsoft made its original bid.
Two years ago in the pre-Digital World, Intuit was a set of nice software franchises that generated a significant annuity stream of upgrade revenues. The portfolio of products would have probably only interested someone who wanted to get into the software business and who would have liked to leverage the Intuit brand, or a company looking to build a software empire and set up Intuit as one of its crown jewels. In the Digital World, however, all sorts of possibilities are open for Intuit. An aggressive and forward-looking banking, financial services or electronic transaction concern could all take a partial or full equity stake to realize all sorts of strategic plans.
Intuit is a company that has grown revenues at a 30% pace for the past five years, while maintaining a number-one position now in four separate core businesses. The company has consistently developed entirely new lines of business where they have managed to attain number-one market position, saying a lot about the management team's ability and the value inherent in the brand. In nine months, for instance, they are estimating that they will have three to four hundred thousand subscribers for their online banking services, surpassing the current giant in the field, CheckFree <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CKFR)") else Response.Write("(NASDAQ: CKFR)") end if %>.
These numbers do not include America Online's planned Banking Center, where many of Intuit's 35 partners will be offering online banking services in the not-too-distant future. Although America Online has not specified yet when the Banking Center will kick off, except to say in the second half of the year, my own personal estimate is that the penetration from this alone will be tremendous. Grabbing 5% to 10% of America Online's six million subscribers would give Intuit the ability to double its number of online banking customers in the first half of the fiscal year.
Compare Intuit for a moment to many of its potential competitors across the online banking arena. Checkfree was worth $775 million at the close of trading today and is simply a financial back-end of comparable size to Intuit's recently-started Intuit Financial Services Unit. CyberCash <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYCH)") else Response.Write("(NASDAQ: CYCH)") end if %>, which is attempting to offer electronic bill payment over the Internet in much the same way that Intuit's two agreements with financial services networks yesterday do, is worth $400 million. Despite the fact that the Intuit Financial Services unit was only started in mid-1995, I believe that if it were traded publicly by itself it would be worth somewhere between $500 million and $1 billion dollars by itself.
If you accept this sum-of-the-parts logic, then the balance of Intuit's highly-profitable network of businesses is selling at about $1.4 to $1.9 billion. Factoring out the $330 million in liquid assets that Intuit currently has, the company is somewhere between two to three times sales. This compares to four times sales for a franchise like Broderbund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BROD)") else Response.Write("(NASDAQ: BROD)") end if %> or eight times sales for Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %>. Once the online banking business begins to come through to the bottom line in the next fiscal year, I believe that $50 a stub will appear to be a bargain basement price.
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