The Lunchtime News looked at the "Technology Sector" today, pointing out that all digital businesses are not created equal. We' have two special features today -- a Special Section on second quarter warnings and this week's update of the IPOzone (featuring the C|Net IPO). Our Industry Decathlon weekly report will be focusing on the retail apparel industry tomorrow. If you're interested in this exciting new product, you can get more information at Keyword: Sector, under Industry Decathlon or by e-mailing MF Bogey at: [email protected].
MF Merlin's Economic News today discusses the data presented in the Conference Board's report on the composite indexes of leading, coincident, and lagging Indicators for May, and the Bureau of the Census' report on new one-family home sales in May. 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 the market's worries about disappointing second quarter earnings. Enjoy!
Petroleum and environmental service provider AMBAR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMBR)") else Response.Write("(NASDAQ: AMBR)") end if %> shares gushed up $3 3/16 to $17 11/16 after the company agreed to be acquired by Beacon Group Energy Investment Fund LP for $18. Beacon is a $658 million equity limited partnership focused on strategic investments in the energy industry. Last month Ambar had filed to offer 3.5 million shares of stock, intending to use the proceeds to pay off a $10 million revolving credit line and $4 million in debt.
Document management company F.Y.I. INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FYII)") else Response.Write("(NASDAQ: FYII)") end if %> surged $4 to $23 after announcing that it acquired Robert A. Cook & Staff, Inc., a California litigation support operation, for $11.3 million in cash. Cook generates about $11 million in revenues annually, so this price-to-sales ratio of roughly 1.0 suggests a good value. F.Y.I. President and Chief Executive Officer (CEO) Ed Bowman noted that, "The Cook acquisition is consistent with our long-term strategy of purchasing profitable, well-managed companies and to significantly expand our presence in the California litigation support marketplace." F.Y.I. also specializes in healthcare document management.
Several recent initial public offerings (IPOs) had good days today. INNOVASIVE DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IDEA)") else Response.Write("(NASDAQ: IDEA)") end if %> shares flew up $2 5/8 to $12 1/4 after its co-underwriter, Alex. Brown, initiated coverage of the medical equipment firm with a "buy" rating. FLAMEL TECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FLMLY)") else Response.Write("(NASDAQ: FLMLY)") end if %> popped up $1 1/8 to $10 after Oppenheimer initiated the French-developer of controlled release drug-products with a "buy" rating. Oppenheimer was one of the lead underwriters for the IPO last month. It isn't unusual for underwriters to recommend companies which they help bring public.
QUICK TAKES: INTERPOINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTP)") else Response.Write("(NASDAQ: INTP)") end if %> announced late yesterday that it planned to spin off its Advanced Digital Information Corp. unit, causing shares of the beleaguered software concern to rally $1 1/4 to $16 1/4... Hambrecht & Quist upgraded GT INTERACTIVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTIS)") else Response.Write("(NASDAQ: GTIS)") end if %> from "buy" to "strong buy" today based on the company's recent acquisitions, a strong product line, and a strengthening publishing business. Shares were up $1 1/4 to $20 1/4... REPUBLIC ENVIRONMENTAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IASI)") else Response.Write("(NASDAQ: IASI)") end if %>, recently spun-off from REPUBLIC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RWIN)") else Response.Write("(NASDAQ: RWIN)") end if %> rose $1 to $15 1/2 the day after it changed its ticker symbol. The environmental services concern has recently entered into a complicated merger which will dramatically expand its core business... Well, not everyone is warning about bad second quarters. ORBITAL SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORBI)") else Response.Write("(NASDAQ: ORBI)") end if %> happily announced this morning that it has received $300 million in orders in the second quarter, calling $230 million "firm" and the remaining $75 million "options". Apparently this exceeded the Street's expectations, as the stock was up $1 3/8 to $18... With the airline boasting one of the lowest consensus analyst ratings around, some VALUJET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VJET)") else Response.Write("(NASDAQ: VJET)") end if %> investors must be expecting a turnaround, as shares were bid up $1 3/8 to $12 1/8 today.
SEGUE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SEGU)") else Response.Write("(NASDAQ: SEGU)") end if %> was nearly cut in half today, dropping $11 to $13 1/2 after it announced that it will see a $0.01 EPS to $0.02 EPS loss in its second quarter on $3.5 to $3.6 million in revenues. Estimates had been for a $0.03 profit in the second quarter. Elisabeth Elterman, President and CEO, said that the unexpected loss was a result of "the movement of several large potential orders into the third quarter". Matters were not helped by the fact that the company was sued yesterday by Softbridge, Inc. for an alleged violation of non-competition and non-disclosure agreements. To add to the carnage, Alex. Brown cut its 1996 estimates for Segue from a $0.19 to $0.10 profit, while maintaining its "buy" rating on the stock. Apparently, investors were not willing to let Segue make the transition to year-end earnings.
A number of prominent "technology" names forecast lower-than-expected earnings today, and were crunched accordingly by Wall Street: DIGITAL EQUIPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> got decked, dropping $5 1/2 to $40 3/8 after reporting that revenues will be below the same period one year ago and that the president of its Computer Systems Division had resigned; SYBASE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYBS)") else Response.Write("(NASDAQ: SYBS)") end if %> dropped $1 1/4 to $18 3/4 after the company forecast a second quarter loss of $20 million on slower-than-expected demand for its products; BORLAND INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BORL)") else Response.Write("(NASDAQ: BORL)") end if %> slid $1 3/8 to $7 7/8 when it estimated a loss of $0.53 to $0.56 EPS, which was far below expectations. The Borland President and CEO resigned after this unexpected disappointment; CREE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CREE)") else Response.Write("(NASDAQ: CREE)") end if %> experienced a higher-than-expected cost for its proprietary light-emitting diodes (LEDs) and is therefore forecasting a fourth quarter loss of $0.02 to $0.05 EPS versus expectations of $0.03 EPS profit. The stock did not respond kindly to this announcement, falling $2 1/2 to $13 1/4.
Shares of AMERICAN RADIO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMRD)") else Response.Write("(NASDAQ: AMRD)") end if %> dropped $2 7/8 to $39 1/8 today after Smith Barney downgraded the stock from "buy" to "neutral". Investors might be interested to know that just one week ago, Morgan Stanley initiated coverage of American Radio with a "strong buy" rating. Morgan also set a price target of $47 per share for 1997. And they weren't alone. In the same week, Alex. Brown reinstated coverage of American Radio with a "strong buy" recommendation, just two days after Morgan put out its "strong buy". The Smith Barney downgrade today sets up the interesting case of significant analyst divergence that often leaves individual investors downright confused.
QUICK CUTS: SILICON STORAGE TECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SSTI)") else Response.Write("(NASDAQ: SSTI)") end if %> was crunched for $3 7/8 to $9 7/8 after the company forecast earnings way below analyst expectations... IMMUNOMEDICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IMMU)") else Response.Write("(NASDAQ: IMMU)") end if %> gave back some of yesterday's gains after the Food & Drug Administration (FDA) approved a cancer diagnostic test, falling $2 to $10 7/8 today... Not even toys were immune today. MATTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MAT)") else Response.Write("(AMEX: MAT)") end if %> was shot for $3 1/8 to $26 this morning after forecasting that earnings for the year will be up only 15% from last year's results... PRISM SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRZM)") else Response.Write("(NASDAQ: PRZM)") end if %> shareholders were given a double-whammy today with the announcement of a loss in the second quarter as well as a downgrade from Hambrecht & Quist, which sent the stock down $4 to $14 3/4... WONDERWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WNDR)") else Response.Write("(NASDAQ: WNDR)") end if %> was another company that suffered from an analyst downgrade and a disappointing earnings forecast today, with the stock down $3 7/8 to $15 1/4... AMERICA SERVICE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASGR)") else Response.Write("(NASDAQ: ASGR)") end if %> was crunched for $4 1/2 to $13 after -- yes, you guessed it -- another disappointing earnings warning... VITALCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VCOM)") else Response.Write("(NASDAQ: VCOM)") end if %> joined the party of bad pre-announcers, down $3 3/16 to $13 5/8 on the day... And SUNGLASS HUTT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAYS)") else Response.Write("(NASDAQ: RAYS)") end if %> slipped $1 3/4 to $18 1/4 after Smith Barney dropped the firm from its "mid-cap recommended list".
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
An Unwarranted Second-Quarter Scare?
Anxiety began to mount this morning as a number of companies began to pre-announce bad quarters. If Wall Street loves anything, it is a trend that has gone on for all of eight hours. As yesterday's euphoria over the reinvigorated merger and acquisition environment gave way to fears about companies blowing their quarterly results, there was some uninspired selling all through the rather light day. Any company that looked a little off its game was liquidated, lest it create a portfolio black eye that some Wise soothsayer would be unable to sweet-talk away.
As for the disappointments, the details varied from company to company. The core story was almost always the same -- "we ain't doing the business we thought that we would". One or two simply suggested that unexpected contingencies had caused all of their careful quarterly modeling to get thrown in the garbage -- essentially highlighting the peculiar madness of making quarterly estimates. It was the high-profile belly-flops of a number of so-called "technology" stocks that should weigh especially heavy on the brows of Wise portfolio managers. Some assiduous reduction in their exposure to this mythological sector occurred today because of the newly perceived "business risk".
As usual, this appears to be a lot of hand-wringing over some events that after painstaking reflection suddenly appear not all that surprising. Look at the companies that are expected to miss their quarters -- these are not the star performers of the last decade. Losers today include BORLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BORL)") else Response.Write("(NASDAQ: BORL)") end if %>, DIGITAL EQUIPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %>, SYBASE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYBS)") else Response.Write("(NASDAQ: SYBS)") end if %> and CREE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CREE)") else Response.Write("(NASDAQ: CREE)") end if %>. What do they all have in common? They all cried uncle *last* quarter. In fact, at least one of them cried uncle two quarters before that. Can we say *company-specific* problems? Come on... does a slowdown at Borland augur something besides the fact that Delphi has wildly underperformed expectations and the software developer is left with very little in the way of a compelling product? Or should it be a surprise that Digital's personal computer albatross finally came back to bite them for a second quarter in a row?
Of course, those ever so Wise practitioners of the science of dynamic risk will say it was not all also-ran names. Some of them were completely unknown. Come on... the rest of the names warning about next quarter? A bunch of small-fries, also-rans and a few economically sensitive issues. Add in the guys who had unexpected events happen during the quarter and there is no large picture of a second quarter in trouble, rather a lot of small pictures of managements in retrograde motion. This Fool is eagerly awaiting the second quarter and thinks that despite all kinds of economic prognostication things are gonna be pretty interesting for all involved.