The Lunchtime News today featured a look at semiconductor equipment company Genus . Also offered today are FoolWires on America Online and 3COM.
Consumer confidence levels have dropped, but home sales are up. What does this all mean? For the scoop, check out MF Merlin's Economic News today. Also of interest is MF Merlin's review yesterday of "By The Numbers", a simple, easy-to-understand book that explains how the economic news influences the behavior of the financial markets. 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 3Com. Enjoy!
GENERAL MAGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GMGC)") else Response.Write("(NASDAQ: GMGC)") end if %> is a stock that has been used by many as an example of how the individual investor can get burned buying IPOs at the open. After debuting in February of 1996 at $18 and reaching a high of $36, the stock began its long and gradual descent to a low of $5, earning the name "General Tragic". Well, today, investors in General Magic received a little boost when the company announced that it was entering the red-hot field of Internet/Intranet application development, issuing a total of eight different press releases. General Magic announced that it had acquired Conterra Software Inc, a South Carolina-based Microsoft NT application developer and also unveiled its new SoftModem, a software program capable of performing data and fax modem functions on general-purpoe microprocessors without separate DSP chips. Also announced was the new Tabriz AgentWare software, which is a deployment and development environment for creating agent-based Internet services and solutions. General Magic also plans to integrate its products with both the Microsoft Network and America Online. And last but not least, the company said that it was ending its "sole reliance on up-front licensing fees and annuity streams from exclusive partners", choosing to concentrate instead on revenue generated by selling Internet applications and development environment software. The stock shot up nearly 45% on all this news, up $2 5/8 to $8 3/4. Perhaps General Magic is regaining some of its lost luster?
MICROCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MNPI)") else Response.Write("(NASDAQ: MNPI)") end if %> rebounded $1 5/8 to $13 7/8 today after a long decline on worries over first-quarter earnings, a delayed decision on an order from telecommunications concern SPRINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> and general uncertainty over Microcom's new focus on developing different types of technologies such as large "central sites" tying computer modems together. Just one week ago, shares hit a 52-week-low of 10. At that point, said Microcom VP of Investor Relations Betty Rock in a Reuters article today, the shares rebounded because "investors [got] a better understanding of our business". Investors might also have been attracted by the company's growing OEM business, through which Microcom sells some of its building-block, remote-access technology to other companies. According to the company, four major OEM contracts have been signed this year, including one with CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSCO)") else Response.Write("(NASDAQ: CSCO)") end if %>. The company also mentioned that Cisco increased its order for Microcom modem cards this quarter.
QUICK TAKES: EXCEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> rose $1 1/4 to $29 1/4 today after the company anounced a new local residential flat-rate service of $0.09 a minute today, with interstate service at $0.25... NEXSTAR PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NXTR)") else Response.Write("(NASDAQ: NXTR)") end if %> was up $1 5/8 to $18 3/4 after it postponed its plan to issue an additional 2.5 million shares of common stock because of "general weakness of the securities market in general and the biotechnology sector in particular"... SOVEREIGN BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SVRN)") else Response.Write("(NASDAQ: SVRN)") end if %> agreed to buy FIRST STATE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FSFI)") else Response.Write("(NASDAQ: FSFI)") end if %> in a deal valued at $60.7 million, and sent shares of First State up $3 3/16 to $13 3/16... PaineWebber juiced up oilfield services & equipment player WEST MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WMAR)") else Response.Write("(NASDAQ: WMAR)") end if %> this morning, raising its rating from "attractive" to "buy" and the stock price up $5 1/4 to $64 3/4... Shares of TUPPERWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TUP)") else Response.Write("(NYSE: TUP)") end if %> rose $2 5/8 to $42 1/8 after Merrill Lynch initiated coverage with a intermediate and long-term "accumulate" ratings... BROOKTREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BTRE)") else Response.Write("(NASDAQ: BTRE)") end if %> saw its shares surge $1 1/2 to $10 5/8 after the company announced that combined digital video camera technology from Silicon Vision with architecturally advanced video capture and processing technology to deliver a reference design for the PCI bus that is compatible with the iVision digital-camera standard.
EXIDE ELECTRONICS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XUPS)") else Response.Write("(NASDAQ: XUPS)") end if %>, designer of uninterruptable electronics power systems, announced today that it expects to earn $0.30 to $0.40 per share (EPS) in fiscal 1996 and promptly had a quarter of its value excised, falling $3 3/4 to $10. The problem? Analysts had been expecting earnings over $1.00 -- quite a difference. Interstate/Johnson Lane cut the firm from "buy" to "neutral" in response and also lowered its estimates. Exide said it expects global demand for computers to slow and noted that its Latin American sales were lower than originally projected. A better ticker symbol for today would have been XDOWNS.
Aye Caramba! Orthopedic device maker ORTHOLOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OLGC)") else Response.Write("(NASDAQ: OLGC)") end if %> plunged $8 5/8 to $20 7/8 today after it announced that the National Association of Securities Dealers (NASD) was conducting a "routine review" of OrthoLogic's trading activity. Also pressuring stocks downward might be a lawsuit slapped against the company and the Chairman and Chief Executive Officer (CEO), Allen M. Weinstein, for allegedly inflating stock prices with misleading information. Weinstein noted that much of these issues deal, "with concerns that are not expected to impair OrthoLogic's core business."
Old news is no news. Or so investors have finally figured out. Semiconductor equipment maker GENUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GGNS)") else Response.Write("(NASDAQ: GGNS)") end if %> yesterday announced that it had received patent protection for its BILLI manufacturing process, which cuts costs significantly. The result? Excited investors poured money into the stock, sending shares soaring, up $2 3/4. Astute investors, however, would have known that this was not really news at all, and that the company was merely restating year-old news. In fact, the ramp-up to develop BILLI is expected to keep earnings down for at least the next several quarters. These astute investors were in a position to take advantage of the pop in price and to sell before prices retreated $1 3/4 to $9 3/8.
QUICK CUTS: PARK ELECTROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PKE)") else Response.Write("(NYSE: PKE)") end if %> shares shifted out of park and into reverse, dipping $2 1/4 to $18 7/8 after the company warned of lowered earnings expectations for the second quarter... NYCOMED USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NYD)") else Response.Write("(NYSE: NYD)") end if %> was whacked for $3 3/4 to $14 3/4 after downgrading its 1996 profit forecast, citing extreme competition in the X-ray contrast agent market... A+ NETWORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ACOM)") else Response.Write("(NASDAQ: ACOM)") end if %> dropped $3 9/16 to $12 1/8 after METROCALL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCLL)") else Response.Write("(NASDAQ: MCLL)") end if %> announced that it would purchase 2.14 million A+ shares for $21.10 each... INTEGRATED SILICON SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ISSI)") else Response.Write("(NASDAQ: ISSI)") end if %> warned of lower-than-expected earnings in its third quarter, due to industry softness, and saw shares slide $1 to $11... Electronic company AVNET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVT)") else Response.Write("(NYSE: AVT)") end if %> slumped $3 7/8 to $43 3/8 after being cut from "market outperform" to "market perform" by DLJ... QUEST MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QMED)") else Response.Write("(NASDAQ: QMED)") end if %> tumbled $3 1/4 to $7 1/2 after warning of disappointing earnings... SIGHT RESOURCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VISN)") else Response.Write("(NASDAQ: VISN)") end if %> announced an offering of 1.7 million shares, and investors worried about dilution sent shares down $1 to $7 1/4... WEST COAST ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WCEC)") else Response.Write("(NASDAQ: WCEC)") end if %> reported earnings of $0.12 per share versus $0.10 in the year-ago period, and fell $2 1/8 to $10 7/8... DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> crashed $8 3/8 to $47 7/8 after announcing plans to spin off some of its businesses... IOMGEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> dropped $2 7/8 to $26 1/2 on no news.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
3COM -- Networking without a Net
Well, it had to happen. At some point in an industry's growth cycle, investors become so addicted to estimate-beating performance that they expect it to never end. Quarter after quarter, they play at Wall Street's consensus estimate roulette table. Putting all their money on black, they bet that a company which has consistently beaten estimates in an industry full of companies that routinely beat estimates will do it again. Playing it for the pop, they are hoping for an upside surprise that will make their short-term investment a success.
Except that sometimes it just don't work out that way.
3COM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COMS)") else Response.Write("(NASDAQ: COMS)") end if %> slumped $4 13/16 to $45 13/16 after having the audacity to report quarterly earnings results that were in line with expectations. You mean that last quarter the company finally guided analysts well enough that they did not undershoot the mark? Or that analysts, frustrated after missing quarter after quarter, finally jacked up their numbers enough to account for the blistering growth the networker was showing? Either way you slice it, the answer was yes.
3Com reported quarterly earnings of $0.16 EPS on a diluted basis including a $0.30 charge for in-process research and development related to the acquisition of the network management technology firm AXON Networks. In the same period a year ago, 3Com earned $0.31 EPS, meaning that on an operating basis the comparison is $0.46 EPS to $0.31 EPS -- a whopping 48.4% gain. Now, how many companies can you name off of the top of your head that report near 50% profit growth on over $500 million in revenues? There aren't too many. So this would be cause for celebration, you would think -- or at the very least would represent a confirmation of the company's 40 multiple when measured against trailing earnings.
Nope. Because consensus estimates called for $0.46 EPS, meaning 3Com came right in line with expectations, everyone who piled into the stock over the last few days was disappointed and piled right back out.
Sure, there were some potential warts in 3Com's performance that recollect Madge NV's last quarter -- not necessarily the best comparison to make given Madge's subsequent performance, I know. 3Com's revenues showed decent growth, with 3Com booking $660.3 million versus $476.2 million a year ago. This 38.6% growth showed that 3Com was expanding its bottom line, a noble task. Revenues for systems gear, including switches and hubs, grew by an impressive 43%.
The fly in the ointment were the sales of adaptor cards, which only increased 34%. Falling below some of the more aggressive estimates, this also apparently hangs below the current industry average -- suggesting that 3Com might possibly be losing some market share here in the low-end. Ethernet adaptor cards have become a pretty hellish battleground of late with companies like ATM-centric FORE Systems getting into the business. As more companies like FORE look to offer end-to-end solutions instead of specialized equipment, sales of the cards are going to go to those who can deliver the rest of the goods -- not the best news for those whose card revenues make up a significant portion of their overall mix currently, like 3Com and Madge. Other negatives came out of the conference call, where 3Com apparently guided analysts to expect a higher tax rate next quarter and also remarked it may potentially expand its direct sales force -- suggesting that no one will be upping their estimates after this quarter's performance.
It ain't all that bad, however. A lot of what happened to 3Com Corp. today had nothing to do with the detailed analysis I am suggesting above. Rather, 3Com has simply had the speculative froth blown off the top, losing the $4-plus that has been added over the last four days in anticipation of this earnings announcement. A look at 3Com Corp.'s chart over the past 30 days shows that even after losing more than 8% today, the stock is just back to where it closed as recently as June 18th. Over the past four days, 14.92 million shares have traded in 3Com. Today, the stock traded 9.5 million shares, three times normal volume, implying that a good portion of the up volume from the past four trading days evaporated today.