CONTENTS
I. Fool Features: Earnings Central Swells, Iomega Reports
II. Conference Calls: AT&T, Iomega, Sun, Ride, MCI, Sears
II. Heroes: Ribozyme, NeoPath, Millenium, InSite, Apple
IV. Goats: TWA, Microcom, Ess Technology, Orthologic
V. Fool on the Hill: CDW Computer Centers Wow the Street
VI. Another Foolish Thing: Arizona Stock Analysis
FOOL FEATURES
Our Earnings Central special collection is growing by leaps and bounds. Today we're planning on adding conference call summaries for AMR Corp, AT&T, Gartner Group, Apple Computer, Iomega, Ride Inc., Sun Microsystems, Shiva, Iomega, Netscape, Sierra, Sears, and Lucent. Most should be available tonight, and a few will up tomorrow. We've got a Special Section on Iomega ready for you, with a multitude of chat rooms open and ready for business. Tomorrow evening at 9 ET, The Fool is hosting a special discussion on Iomega.
MF Merlin's Economic News today discusses the latest state unemployment claims, international trade, durable goods/factory orders, and Fed Chairman Alan Greenspan's semi-annual report on monetary and economic policy to the Senate Banking Committee. 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 CDW Computer Centers. Enjoy!
CONFERENCE CALLS
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These calls are scheduled for today.
AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>
1-800-260-0712 -- live (8:30 am EDT)
1-800-475-6701 (code: 310625) -- replay (after 10am)
CONTROL DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDAT)") else Response.Write("(NASDAQ: CDAT)") end if %>
1-402-220-1732 -- replay (c. noon EDT)
RIDE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RIDE)") else Response.Write("(NASDAQ: RIDE)") end if %>
1-415-908-4755 -- live (4:30 p.m. EDT)
SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %>
1-800-633-8284 (code: 1824275) -- replay (c. 5:30 pm EDT)
IOMEGA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>
1-800-633-8284 (code: 1837381) -- replay (c. 6:30 pm EDT)
MCI COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCIC)") else Response.Write("(NASDAQ: MCIC)") end if %>
1-800-839-8277 (passcode: 8277) -- replay (should be available now)
SEARS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %>
1-800-865-4460 -- replay (It's accessible now through the 23rd, starts on the hour every hour, call in c. 5 minutes before the hour.)
HEROES
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Some biotech companies benefited from news reports today. RIBOZYME PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RZYM)") else Response.Write("(NASDAQ: RZYM)") end if %> shares surged $2 3/4 to $13 1/4 after the company announced a research collaboration with ALZA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZA)") else Response.Write("(NYSE: AZA)") end if %> which will treat central nervous system diseases with ribozymes via Alza's drug delivery system. Ribozyme develops ribozymes for use as human therapeutics, while Alza makes human and veterinary drugs and delivery systems. NEOPATH's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NPTH)") else Response.Write("(NASDAQ: NPTH)") end if %> announcement that the Food & Drug Administration (FDA) has scheduled a meeting to review its AutoPap(R) product sent shares soaring, up $4 3/4 to $24. The device will automatically screen Pap smear slides, clearing some as "normal", and sending the rest on to professional humans for evaluation.
MILLENNIUM PHARMACEUTICAL's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MLNM)") else Response.Write("(NASDAQ: MLNM)") end if %> popped up $4 3/4 to $16 1/4 after the company announced an alliance with AMERICAN HOME PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> that includes a $90 million payment from AHP to develop genomic technologies and fund a seven-year research program designed to develop treatments for central nervous system disorders like anxiety, depression and schizophrenia. This deal brings the program's total funding to $300 million. Also benefiting from a new deal was INSITE VISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INSV)") else Response.Write("(NASDAQ: INSV)") end if %>, which is partnering with BAUSCH & LOMB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOL)") else Response.Write("(NYSE: BOL)") end if %> to develop anti-glaucoma treatments. InSite shares popped up $1 1/64 to $5 3/8.
APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %> confounded naysayers yesterday evening when it reported a net loss of $0.64 EPS after backing out a one-time gain from the sale of its 5% stake in AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>. Analysts had been looking for a loss of $1.12 EPS, making today's massive loss look good by comparison. Apple rose $4 to $20 7/8 and Goldman upped it from "market perform" to "recommended-list buy." In spite of the fact that GLOBAL VILLAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GVIL)") else Response.Write("(NASDAQ: GVIL)") end if %> posted a wider-than-expected loss, the manufacturer of communications products rose $1 1/4 to $8 on Apple's positive surprise. Global Village makes a lot of Macintosh networking equipment and modems.
QUICK TAKES: CELERITEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLTK)") else Response.Write("(NASDAQ: CLTK)") end if %> reported earnings in line with consensus expectations this morning, and rose $1 3/4 to $12 1/4 in short order. Investors apparently expected the manufacturer of gallium arsenide semiconductors to disappoint this quarter... Systems integrator CONTROL DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDAT)") else Response.Write("(NASDAQ: CDAT)") end if %> surged $2 7/8 to $18 after reported earnings that were a penny above consensus expectations... Shares of WALL DATA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WALL)") else Response.Write("(NASDAQ: WALL)") end if %> are up $3 1/2 to $20 3/4 this morning after the company reported $0.17 EPS for its fiscal second quarter, a full seven cents more than expected. Punk Zeigel upped Wall to an "aggressive buy" this morning after the news hit.
MORE QUICK TAKES: Operating systems developer GEOWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GWRX)") else Response.Write("(NASDAQ: GWRX)") end if %> continued rising, up $6 1/8 to $31 1/8 after meeting estimates of a $0.14 per share loss yesterday... COMPUTERVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVN)") else Response.Write("(NYSE: CVN)") end if %> reported second quarter earnings of $0.16 per share versus $0.14 in the year-ago period, a penny below estimates, and jumped $1 1/8 to $7 3/4... Digital holography developer VOXEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VOXL)") else Response.Write("(NASDAQ: VOXL)") end if %> announced that Konica has agreed to manufacture silver halide Voxfilm for use in Voxel's "3-D X-ray" medical technology. Shares rose $1 1/16 to $6 7/8 as a result... Storage technology concern IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> advanced $1 7/8 to $28 in anticipation of earnings to be released after the bell. Earnings were $0.11 for the quarter, a penny ahead of expectations.
GOATS
~~~~~
TRANS WORLD AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWA)") else Response.Write("(NYSE: TWA)") end if %> shares were cut $1 1/4 to $10 today, following yesterday's tragic crash of flight 800. Although the cause of the crash has not yet been determined, some investors don't seem to want to wait around to find out. Benefiting from the bad news is INVISION TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVN)") else Response.Write("(NASDAQ: INVN)") end if %>, which surged $3 1/8 to $13 7/8 today. InVision manufactures bomb detection devices which use computer tomography (used in CAT scans) to recreate 3-D images of objects in suitcases rolling by on conveyer belts.
People have been expecting MICROCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MNPI)") else Response.Write("(NASDAQ: MNPI)") end if %> to miss its numbers for weeks now. However, no one expected this -- earnings of $0.02 EPS versus consensus expectations of $0.20 EPS. Down $1 7/8 to $8 1/8, this news constitutes a major blow to the remote access modem concern. The company blamed its poor performance on product and sales transitions and deferred major orders. Gross margins were squashed from 40% levels to 34%, with the Chief Executive Officer (CEO) noting that, "I believe until we get new product out gross margins will stay relatively even."
Companies which met expectations fared not much better. ESS TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESST)") else Response.Write("(NASDAQ: ESST)") end if %> imploded, dropping $3 7/8 to $10 5/8 after meeting analyst estimates of $0.28 for its second quarter. Morgan Stanley downgraded the firm from "strong buy" all the way down to "neutral." ORTHOLOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OLGC)") else Response.Write("(NASDAQ: OLGC)") end if %> reported earnings of $0.06 EPS, in line with expectations. The stock slumped $3 11/16 to $10 7/16, however. Perhaps there was an update on the problems with the Food & Drug Administration in the quarterly conference call? Or the company issued new guidance because of the FDA's warning about selling their bone healing product for purposes for which it has not been cleared?
QUICK CUTS: So if PINNACLE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PCLE)") else Response.Write("(NASDAQ: PCLE)") end if %> reported operating earnings that were two cents higher than consensus, why are they down $4 1/4 to $12 5/8 today? Hambrecht & Quist downgraded the stock to "hold" from "buy" today, noting that although Pinnacle's Genie product has strong demand, it's waiting for sizable shipments to begin... NU KOTE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NKOT)") else Response.Write("(NASDAQ: NKOT)") end if %> dropped $2 5/8 to $9 1/8 when it announced a upcoming shortfall in its fiscal fourth quarter profits. A recent acquisition has caused a greater-than-expected decline in revenues for its impact printing products.
MORE QUICK CUTS: TRIQUINT SEMICONDUCTOR (NASDAQ TQNT) dropped $3 1/4 to $18 5/8 in spite of beating consensus estimates this morning by a penny, coming in at $0.21 EPS... Internet security giant SECURITY DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDTI)") else Response.Write("(NASDAQ: SDTI)") end if %> slumped $3 3/4 to $74 1/4 after beating consensus estimates by a penny. Machine tool producer HARDINGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HDNG)") else Response.Write("(NASDAQ: HDNG)") end if %> reported net income up 32% and a penny shy of estimates, falling $2 7/8 to $24 1/4... Downgraded by Goldman from "outperform" to "market perform", NETWORK EQUIPMENT TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWK)") else Response.Write("(NYSE: NWK)") end if %> slipped $1 3/4 to $14 1/4... Similarly dissed was SEAGULL ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGO)") else Response.Write("(NYSE: SGO)") end if %>, cut from "outperform" to "neutral" by Morgan Stanley and off $2 3/4 to $21.
An Investment Opinion by MF Templar
FOOL ON THE HILL: CDW Computer Wows The Street
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CDW COMPUTER CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDWC)") else Response.Write("(NASDAQ: CDWC)") end if %> has been a favorite of short-sellers for months now, all uniformly talking down the company's prospects in the face of slowing demand for personal computers and citing its high valuation. This morning a price at 30-some times trailing earnings for a company that delivered a 50% increase in sales and a 97% increase in net income suddenly appeared really cheap to many investors. It was enough to spark a rally of $5 3/16. CDW closed at $46 3/16 today, up 12.65% on four times normal volume. CDW's rally drove up shares of its competitor MICRO WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MWHS)") else Response.Write("(NASDAQ: MWHS)") end if %> up $3 1/2 to $20.
Growth, to say the least, was stunning. CDW posted revenues of $218.7 million, putting their run rate at close to $900 million. (A run-rate is when you take the results from the most recently completed quarter and multiply them by four. This gives you a sense of what a company would do over a full year if it can keep up revenues and earnings at the level of the most recently completed quarter.) These revenues were 5.8% above last quarter, which is nice quarter-to-quarter acceleration.
Earnings for CDW were what really propelled the shares along. The company beat consensus estimates by eight to nine cents depending on whose consensus you look at. These numbers were 14.7% ahead of last quarter and darn near double what the company did last year, meaning they were literally pumping out those PCs. After this quarter, CDW Computer's trailing earnings for the past four quarters adds up to $1.27 EPS, putting the company at 36 times its trailing earnings as of market close today.
CDW Computer Centers is a mail-order direct marketer of a wide variety of computer-based products, including hardware, software and peripherals. (When I called the company today to get in touch with investor relations, I listened to some commercials -- one for IOMEGA's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> Jaz drive, for instance.) The company seeks to price its products competitively and make money by keeping a tight reign on costs, providing "superior customer service." I can't speak to the last part, as I have never ordered a product from CDW, but I definitely can affirm the first part -- these guys have a pretty tight control on costs.
Selling, general and administrative expenses for CDW decreased to 7.6% of net sales versus 8.0% of net sales in the same quarter a year ago. The company attribued this decline to improved productivity and lower advertising costs in the press release. The company did this while increasing the number of "account executives" working the phones to 256 from 162 -- pretty tremendous. Controlling these SGA expenses is pretty important for a company like CDW, as so much of the cost for the products it retails is fixed. CDW's gross margins were 13.5% this quarter, up from 12.6% last quarter. Although the growth here was impressive, the overall margins are small and minute changes in SGA expenses allow a heck of a lot more profits to flow through to the bottom line.
The real strength of CDW is in its delicate use of working capital. These guys turn their inventories like crazy, leaving the cash constantly available for any marketing or administrative needs the company envisions. The press release boasted an annualized inventory turnover rate of approximately 23 times, annualized over the first six months. To give you some comparisons, the PC makers average between 8 and 12 inventory turns with Dell maxxing it out at 12 to 14 turns. (An inventory turn is when you theoretically sell out your entire inventory. If you have $1 in inventories at the beginning of the year and $10 million in revenues, you need to turn your inventories 10 times in order to fill all of your orders.I recently discussed this in a article entitled Price/Book, DSO & Turns in a series called Liquid that ran in our weekend publication, Fool's Gold.)
Let's not miss the fact that CDW had strong revenue growth while we laud their financial controls, however. CDW's sales have been fueled by "sales of high-end notebook/laptop computers, as well as multi-media products, input devices and data storage products" -- probably including the Jaz drive they were hawking while I was waiting on the phone. Even though Apple/Macintosh sales slowed in the quarter, as they were only 7% of their total revenues, it really did not take much wind out of their sales. CDW has also apparently been benefiting from the total panic in the computer industry, closing some sweet deals to get volume shipments of PCs and related products on the cheap. "For example, we just completed a special purchase for two models of a name brand desktop computer, including one model with a 133MHz Pentium processor priced to sell at $1,399.00," said president Gregory Zeman.
Consensus estimates for CDW this year were $1.32 EPS before today, with next year's numbers hanging tough at $1.65. The current estimates mean the company has to increase earnings in the second half by only 17% in order to meet them. I think a lot of today's rally was because analysts were aggressively moving their numbers up to reflect the company's cost structure. If you assume that CDW can improve revenues by another 5% each quarter over the next two quarters, improve gross margins to 13.75% from the current 13.54%, decrease SGA expenses to 7.5% from 7.56% and keep its tax rate stable at 39%, it will make $0.42 EPS in the third quarter and $0.44 EPS in the fourth quarter, putting it at $1.60 EPS for the year -- well above the $1.32 EPS that analysts were looking at before today. In fact, this is about the $1.66 or so that analysts were looking for *next* year. The shares trade at 29 times my back-of-the-evelope estimates for this year's earnings and at about 22 times next year's estimates if they can grow EPS by 30% in 1997, implying that a fair price might be a little higher than today's close.
ANOTHER FOOLISH THING: Arizona Stock Analysis
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Small, under-followed emerging growth companies in Arizona were a terrific place to invest over the past few years and MF Yon, the Editor of "Arizona Stock Analysis", believes this will continue in the future. His strategy of identifying winners before the Street catches on has been most profitable, trouncing the market by a sizable margin. Yon began sharing his views on-line last fall in the "Folly in Arizona" folder (part of the "Folly in 50 States" message boards) and his analysis has led to the publication of the "Arizona Stock Analysis", a monthly newsletter available by e-mail or fax. If this piques your interest, check it out at keyword: FoolMart or e-mail [email protected].
Randy Befumo (MF Templar), a Fool
Fool On the Hill
Selena Maranjian (MF Selena), another Fool
with Prem Kumar (MF Prem), one more Fool
Heroes & Goats & Editing
(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.
Transmitted: 7/18/96 6:04 PM (en071896)
Randy Befumo (MF Templar),
a Fool
Fool On the Hill
Selena Maranjian (MF Selena),
a Fool
Heroes & Goats & Editing
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