Today we feature a look at Uniforce, a temporary service company whose stock has plummeted in the past month. The Lunchtime News looked at another company that's seen better days -- TechForce -- and you can find this past issue and others in the "Old News Pile" in the Evening News Archives.
MF Merlin's Economic News today covers reports on manufacturers' shipments, inventories and orders, and on same-store sales. 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 concludes his examination of conglomerates. Enjoy!
Shareholders of NUKO INFORMATION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NUKO)") else Response.Write("(NASDAQ: NUKO)") end if %> must have been high-fiving each other today, as shares exploded, rising $4 5/8 to $16 1/2. What's the scoop? Well, digital video conferencing concern NUKO announced an agreement with ADSL modem-supplier WESTELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSTL)") else Response.Write("(NASDAQ: WSTL)") end if %> to integrate Westell's T1 ADSL technology into NUKO's line of Highlander MPEG-2 digital video codec systems. This will permit high-speed, high-bandwidth digital video access on existing telephone lines made of copper.
Several relatively small biotechnology companies had a good day today. IMATRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IMAT)") else Response.Write("(NASDAQ: IMAT)") end if %>, for one, plowed ahead another $2 to $7, rising on a positive interview with its chief executive officer on CNBC following yesterday's news that an article in the Journal of the American Heart Association suggested that its Ultrafast scanner was "more powerful than the best available non-invasive test in predicting heart attacks". Meanwhile, XOMA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XOMA)") else Response.Write("(NASDAQ: XOMA)") end if %> was granted a patent for its use of BPI protein drugs with antibiotics in order to treat serious bacterial infections and complications from infections, trauma and surgery. Shares leapt up $1 to $8.
Life-insurance provider FIRST COLONY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCL)") else Response.Write("(NYSE: FCL)") end if %> soared $4 to $31 this morning when the company, explaining how it was "exploring strategic alternatives", essentially announced it was for sale. GENERAL ELECTRIC'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> GE Capital unit was cited as interested in the deal, having snapped up a number of life insurance providers in the past few months. Also cited as potential suitors are AMERICAN GENERAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGC)") else Response.Write("(NYSE: AGC)") end if %>, SUNAMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAI)") else Response.Write("(NYSE: SAI)") end if %>, and TRAVELERS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRV)") else Response.Write("(NYSE: TRV)") end if %>.
The analysts were at it again today. "Buy!" "No, sell"! "If you own, hold! But if you don't own, you might want to buy a little!" "Hold for a few months, but buy for a year!" Argh. Fools are advised to pay a lot more attention to analysts' numbers and estimates than to their ratings. But nevertheless, ratings changes are news and move stocks. Hambrecht & Quist analyst Jean-Michel Valette raised his rating on vintner ROBERT MONDAVI CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MOND)") else Response.Write("(NASDAQ: MOND)") end if %> from "hold" to "buy" based on the company's new sourcing agreement to import wines from France's Langeudoc region. Shares jumped $1 3/8 to $32 3/8. Dean Witter analyst Marie Rossi upped healthcare informatics concern MEDAPHIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MEDA)") else Response.Write("(NASDAQ: MEDA)") end if %> from "accumulate" to "buy" this morning, lifting shares $2 3/4 to $42 3/4. And Merrill Lynch started chemical-mechanical planarization (CMP) equipment-maker ONTRAK SYSTEMS (NASDAQ ONTK) with a "near-term neutral", oddly sending shares up $2 3/4 to $26 1/2.
QUICK TAKES: BOLIVIAN POWER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLP)") else Response.Write("(NYSE: BLP)") end if %> got investor hearts beating wildly in anticipation, announcing that it has hired UBS Securities and Donaldson Lufkin & Jenrette to explore its strategic options, given its low debt and pile of $90 million in cash. Shares jumped $2 3/4 to $41 3/4... Semiconductor equipment manufacturer and recent initial public offering (IPO) ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ETEC)") else Response.Write("(NASDAQ: ETEC)") end if %> continues to defy gravity, rising $3 1/4 to $36 3/4. The perception that equipment from this company is necessary to help companies like INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> make chips for less money is behind the rise... ALLIED RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ALR)") else Response.Write("(AMEX: ALR)") end if %> shot up $2 1/4 to $7 today, announcing a $50 million contract to manufacture a range of military equipment for an unidentified buyer. Hmm... is it time to duck and cover?
ARROW INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ARRO)") else Response.Write("(NASDAQ: ARRO)") end if %>, climbed up to the high dive, hopped three times, and belly-flopped $11 1/4 to $28 1/2. The company reported that it actually made less than it did last year when analysts were expecting a 15% profit. Blamed by the company were low U.S. demand, the strength of the dollar, the weakness of the Japanese yen, delayed international shipments, and slower-than-anticipated new product releases. Alex. Brown, not pleased, cut the firm from "buy" to "neutral". Arrow makes disposable catheters and related products.
Woe to those who eagerly invested in initial public offering (IPO) TECHFORCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TFRC)") else Response.Write("(NASDAQ: TFRC)") end if %> this December. Debuting at $11, the stock never got higher than $13 1/4, and today slid down $1 5/8 to $7 7/8. The problem? It was spelled out in the company's pre-offering prospectus -- "Reliance on Major Customers" -- but many investors don't always take the time to carefully read those. Nearly half of TechForce's revenue in the first half of 1995 came from Federal Express and Packard Bell. Yes, Packard Bell, which bet on low-end PCs and lost. In today's Lunchtime News, MF Templar noted that, "I would guess that today's merger between the worldwide PC operations of Packard Bell and NEC does not bode well for TechForce's contract with Packard Bell, which expires on November 1, 1997". Alex. Brown downgraded the stock from "buy" to "neutral". Avoid IPOs, Fool.
UNIFORCE TEMPORARY SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UNFR)") else Response.Write("(NASDAQ: UNFR)") end if %> shares plunged $2 to $15 1/2 on over two times normal volume today, amid rumors of an impending analyst downgrade. Since Value Line appears to be the only rating service covering the stock, the rumor holds little water. Nevertheless, Uniforce is a very thinly-traded stock, and with fewer than five million shares outstanding, any significant volume of trading will move the stock sharply. Uniforce specializes in professional staffing services for businesses and government agencies, and its shares traded around $30 a year ago. No one at the company was available to comment on these developments.
QUICK CUTS: Another "strong sell" out of Asensio & Company -- this time Manuel takes on highflyer DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %>, a food distributor turned networker via the purchase of a number of distribution companies. Diana, down $5 to $79, pretty much installs and distributes networking equipment... SAFETYTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SAFE)") else Response.Write("(NASDAQ: SAFE)") end if %> forecast lower-than-expected fourth quarter revenues and earnings, sending shares down $1 1/2 to $11 1/4... PRESSTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %> shares were pressed down $16 to $134 today, on news that the chairman and his son had filed to sell $40 million of shares -- each. The company is being examined by the SEC because of its unusual trading history... PINNACLE MICRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PNCL)") else Response.Write("(NASDAQ: PNCL)") end if %> continued to distance itself from its share price pinnacle, falling $3/8 to $9 1/4 on no apparent news... STORAGE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOS)") else Response.Write("(NYSE: SOS)") end if %> might be ruing its ticker symbol, slipping $1 1/4 to $17, also on no apparent news.
Breaking Up Is Hard To Do, Part IV
We have discussed what I call "sum-of-the-parts" valuations over the past three installments. The first segment provided a general context in which to understand the "sum-of-the-parts" valuation, an alternative way of looking at a company's true value by figuring out what it subsidiary parts would be worth if each of them traded separately. The next two sections focused on applying this general concept. The first looked at old-style conglomerates with profitable subsidiaries and brands that could be spun off to maximize shareholder value. Yesterday, we took a gander at the quasi-arbitrage opportunities available when a company announces a spin-off but has not completed it yet, giving a list of names of companies to examine further.
Today's final segment looks at holding companies specifically, although I will try to make the broader point that one can sometimes find out how much value a publicly-traded company has by approaching it piecemeal rather than putting a single multiple on consolidated earnings. This reflects the market reality that companies always have the option of selling off subsidiaries rather than maintaining their current status quo if at any point their strategic direction is changed by upper management.
Some companies, in fact, are constructed along that very premise -- buy whole companies, subsidiaries or controlling stakes in publicly-traded companies on the cheap, fix them up and rake in the dough. These are typically called "holding" companies and come in a variety of shapes and sizes. One such example is COUNSEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CXSNF)") else Response.Write("(NASDAQ: CXSNF)") end if %>, a Toronto-based holding company whose main claim to fame is that it owns a controlling stake in AMERICAN HOME PATIENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AHOM)") else Response.Write("(NASDAQ: AHOM)") end if %> and CAPSTONE PHARMACY SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DOSE)") else Response.Write("(NASDAQ: DOSE)") end if %>. American Home Patient, the Tennessee-based Cadillac of home-health care, is the country's third largest player in this growing arena. Capstone Pharmacy is a major "institutional pharmacy", offering to sell bulk drugs to nursing homes, prisons and jails across the nation.
Counsel Corp. has the good fortune to own 25% of Capstone and 41% of American Home Patient. The total value of these investments are $37.4 million for the Capstone stake and $177.3 million for the American Home Patient stake, based on today's market close. This means that the stock in Counsel Corp.'s possession is worth $214.7 million, not counting the $60 million in tax-loss carry-forwards Counsel currently has to cover some of its substantial capital gains when it finally decides to take some profits.
This is exactly what the company will be doing shortly, as it filed at the end of May to sell 500,000 shares of American Home Patient. The company also has disposed of MediDyne and Medserv Corp. for cash in the past two quarters. Finally, Counsel additionally holds 40% of privately-held O&Y Properties, Inc., a unit that generated about $2 million in revenues for Counsel and $231,000 in profits last quarter. All this and $17.5 million in cash on the balance sheet from last quarter, to boot.
With 21.351 million shares outstanding trading at $8 3/8 a share, this means that Counsel Corp. is being valued at $178.8 million when the sum of its publicly-traded investments and current cash on the balance sheet measures $232.2 million, a 23% discount. And in this analysis, you get the 40%-owned property management subsidiary for free and don't even count whatever cash it got when it sold MediDyne to Capstone a few weeks back.
The only problem with these sorts of situations is that they are not for the impatient. As any shareholder in a closed-end fund can attest, a holding company trading below the liquidation value of its investments is a pretty common sight. When you purchase a company like Counsel, you need to have the patience to wait to see the full value recognized, and to discount this over the appropriate time frame to get a sense of what more management can do with this money. Given the astounding performance in Capstone and American Home Patient in the past few months, one could make a case that Counsel has an incredible eye for value in the medical services arena. As always, though, due diligence is required.