We just never stop listening to those conference calls. Today, we've got summaries for Zoom, US Robotics, Harris Corp, and Manpower. Check 'em out!
MF Merlin's Economic News today reports on Durable Goods Orders and Existing Home Sales for June, and the latest weekly report on new claims for state unemployment benefits. 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 Momentous Investing. Enjoy!
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Well, Big Blue certainly didn't disappoint. IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> today announced second quarter earnings ahead of analyst expectations, and was rewarded with a $11 7/8 to $103 5/8 rise in its stock price. The company reported earning $2.51 in the just-completed quarter, versus First Call consensus estimates of $2.44. Revenues in the service business sector grew by 23% in contrast to year-ago results, the company said, while hardware sales fell 1% versus the same period last year. Interestingly enough, IBM's historically plagued PC division reported increased revenue, while mainframes, semiconductors, and storage revenue fell. Gross operating margins for the quarter were 39.5%, versus 43.5% in the year-ago period. Net income, while above expectations, was down year-over-year, as second quarter 1995 results came in at $2.97 per share.
Storage technology concerns were buoyed today by better-than-expected earnings from WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>, which reported earning $0.71 in the fourth quarter, versus First Call consensus expectations of $0.55. Hambrecht & Quist analyst Todd Bakar then promptly raised his fiscal 1997 estimates from $2.95 per share to $3.15 per share, while his colleague Andrew Neff at Bear Stearns raised his rating on the stock from "neutral" to "attractive". The end result of all these upgrades was that Western Digital stock rose $3 to $26 3/4, while shares of SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> climbed $4 to $44 3/8 in sympathy. Disk-drive manufacturer QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QNTM)") else Response.Write("(NASDAQ: QNTM)") end if %>, up $1 3/8 to $12 3/8, also benefited from the Western Digital news, as did shares of KOMAG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KMAG)") else Response.Write("(NASDAQ: KMAG)") end if %>, which rose $1 to $21 3/8. To find out what all the excitement was about, interested Fools can check out the Western Digital Conference Call write-up, available in Earnings Central.
LIVING CENTERS OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCA)") else Response.Write("(NYSE: LCA)") end if %> reported earnings in line with consensus expectations today, and announced a bunch of other things as well. The long-term health care provider announced that it had divested its Living Centers-DevCon subsidiary, choosing instead to expand its American Pharmaceutical Services unit. This change in corporate structure could end up benefiting the company, as the pharmaceutical side of Living Centers' business is growing at a much faster rate than the DevCon part. The company also added today that it would adding that it would buying back up to $20 million in stock to fund its employee stock purchase plans. Shares of Living Centers closed the day up $1 7/8 to $24 1/4.
QUICK TAKES: P-COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PCMS)") else Response.Write("(NASDAQ: PCMS)") end if %> announced today that it had received purchase orders valued at more than $1.4 million to supply 23 GHz and 38 GHz digital millimeter wave radio systems to Nortel, boosting shares $3 5/8 to $22 1/2 ... VERIFONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VFI)") else Response.Write("(NYSE: VFI)") end if %> helped out shareholders today when it announced that it would be repurchasing 1.5 million shares of common stock. Verifone closed the day up $3 5/8 to $43 3/8 ... VENCOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> reported a 25% rise in net income over the previous year, and rose $2 7/8 to $28 3/4 as a result ... UROMED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: URMD)") else Response.Write("(NASDAQ: URMD)") end if %> surged $2 3/4 to $13 3/8 after the company received Food & Drug Administration approval to market its Reliance Urinary Control Insert today ... Shares of SHAW INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHX)") else Response.Write("(NYSE: SHX)") end if %> rose $1 1/8 to $13 1/8 after the company set a cash dividend of $0.75 per share ... Shares of the "document company", XEROX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %> soared $3 7/8 to $50 3/8 today after the company reported earnings of $0.85 EPS on a meager 4% rise in revenues ... DANKA BUSINESS SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DANKY)") else Response.Write("(NASDAQ: DANKY)") end if %> reported earnings today that were in line with the $0.25 EPS that it told investors to expect on June 26th and was rewarded $2 7/8 to $26 7/8. Investors were heartened by signs of improvement in the company's cost structure that they apparently did not expect.
CHARTER POWER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHTR)") else Response.Write("(NASDAQ: CHTR)") end if %> was crunched for $10 to $18 today after the company told shareholders at its annual meeting that it expects net income for the current quarter to be 35% - 40% lower than year-ago results. Charter had earned $3.9 million, or $0.61 per share, in the second quarter of 1996. The company cited one-time charges related to the relocation of its electronic business and other costs related to faulty supplies for its Charter batteries as causes of the disappointment. Shares of the power systems company were toasted despite management's optimistic comments about resumed growth for the second half of the year. The company also announced its first quarter dividend of $0.0275 today, but investors fled anyway.
Earnings disappointments continued today: DIGI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DGII)") else Response.Write("(NASDAQ: DGII)") end if %> lost $3 1/8 to $12 today after the company didn't even come close to meeting analyst expectations when it posted third quarter results of $0.13, a full $0.17 below consensus estimates. Shares of POWERCERV (NASDAQL PCRV) tanked $5 to $4 after the company posted earnings of only $0.01 EPS versus $0.03 EPS last year. Alex Brown slashed the stock to "neutral," effectively abandoning the company it brought public. Pill delivering and bottled water selling MCKESSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %> dropped $1 1/8 to $41 1/2 after the company missed its quarterly numbers, posting $0.66 EPS versus consensus estimates of around $0.72 EPS.
QUICK CUTS: SECURE COMPUTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCUR)") else Response.Write("(NASDAQ: SCUR)") end if %> was mashed today after the company posted a large loss due to a one-time charge relating to spending on a new product. Shares of the firewall developer slumped $1/2 to $17 1/4 ... NETWORK GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETG)") else Response.Write("(NASDAQ: NETG)") end if %> dropped $2 1/2 to $18 5/8 after it met its quarterly earnings estimates this morning, posting $0.19 EPS a share ... BROWNING FERRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BFI)") else Response.Write("(NYSE: BFI)") end if %> dropped $1 7/8 to $23 1/8 after reporting third quarter earnings of $0.31 EPS versus $0.53 EPS last year. Merrill Lynch cut the stock to a "long-term neutral" from a "long-term buy" shortly after the results hit the Street ... MEDAR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MDXR)") else Response.Write("(NASDAQ: MDXR)") end if %> dropped $7/8 to $7 7/8 after reporting earnings of $0.10 EPS ... GENZYME TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GENZL)") else Response.Write("(NASDAQ: GENZL)") end if %> reported a mich wider loss than anticipated, and dropped $1 1/2 to $7 5/8.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Momentous Investing
What do AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUBE)") else Response.Write("(NASDAQ: CUBE)") end if %>, IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> and US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> all have in common? All four companies were driven to recent heights by a pile-up of quantitative and/or technical analysis and all four have recently been completely abandoned by many of the institutions that pushed them to record levels after they reported that current rates of growth could not continue.
America Online's purge began when it reported second quarter earnings in May. The company said during its conference call that it was going to have a "seasonal" slowdown in subscriber growth. As many of the more aggressive, quantitatively oriented investors were looking at subscriber growth, this was a shocking admission that caused them to begin to dump their shares. The selling began to trigger other price/volume-oriented investors to begin to liquidate their shares as well and before you knew it the stock had fallen 65%.
C-Cube Microsystems saw its sequential revenue and earnings growth slow when it reported $0.39 EPS on $73.0 million in revenues. Whereas two quarters ago C-Cube increased earnings sequentially by 50% and revenues by about 43%, last quarter C-Cube pumped out a 3% increase in earnings and a 1.5% increase in revenues without surpassing estimates by much at all. So in spite of the fact that the year-over-year growth was great, the stock got mushed. C-Cube's slowdown would have been anticipated by anyone who realized that the DVD business is ramping up and the video CD market was maturing, but for some reason unrealistic expectations got built into the price and the stock sufferred for it.
Iomega had its date with destiny after it posted its own second quarter earnings. Although the quarter itself did not disappoint the Street, what was particularly irksome was a problem in its European unit that kept about $30 million in inventory in the channel. Those lost sales slowed the company's momentum and put it in a position where sequential comparisons in the next quarter would be much lower than the previous quarter, violating many a quantitative and technical analysis paradigm and causing a pile-up of sells. The company's Zip removable storage drive business might be maturing, some fundamentally-oriented analysts considered, and the margins on the Jaz removable storage drive just aren't where they would have liked them, driving the growth adherents who had picked up the stock out of it as well.
Today's debacle was US Robotics. In their quarterly conference call, the maker of communications devices reported that much of this quarter's buxom growth in the modem business could be attributed to them stuffing the channel and that investors should not expect a repeat next quarter. After almost two years of 15% to 20% sequential increases and an annual doubling of earnings and revenues, this came as quite a blow to the momentum crowd. Add to this that the company did not beat estimates by its typical 10% or more because it guided analysts to expect 15% sequential growth instead of 7% and you have a lot of momentum people jumping ship.
What is the moral that we can abstract from these stories? There are a bunch of ways to value stocks and to look for companies that will outperform over the short, intermediate and long term. Without getting into any name-calling about which approach is better than the other, it is fairly easy to say without any hope of being disputed that they end up thinking different sorts of companies are attractive. This giant circle of valuation drives stocks to manic heights when they become attractive to all sorts of approaches. However, when one school wants to drop out, it normally sends the others out pretty quickly.
The apparent scenario for the stocks above is the quantitative/momentum crowd jump ship knocking adherents of technical analysis right out with their volume and then the growth people, some with an eye toward the charts, start going over the valuations again and decide there are better places to be as well. Because this only leaves the value/low multiple oriented people to buy for the most part, the stocks have a long way to fall before anyone will get interested again. This has some logic to it as in many cases the company was originally driven up by and sold to the momentum people by the value people, especially in an instance where a company got into a new line of business that was not fully reflected in the price (Iomega's Zip, US Robotics' systems business, etc.).
It would seem that after all of the momentum and technical people leave, the stock will fall until the value people become interested, who then will pawn it off to the growth people and start the whole momentous cycle over again when the pass the stock to the quantitative gang. A secular argument for short pullbacks in the market-based on valuation? Or just a story about a merry-go-round. You decide.
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