The Fool Portfolio performed its annual Dow Dividend switch today, and more trade announcements are on the way tonight, for both the Fool and Boring portfolios. Make sure you tune into the Hall of Portfolios later tonight for all the details.
Today's Lunchtime News featured a Fool Plate Special on the recent developments with tobacco companies and also touched on utility merger news. The tobacco story will be featured in an expanded Special Section today. Earnings Central will feature new conference call summaries for Speedway Motorsports and Intercargo Corporation. Finally, we have MF Templar's killer analysis of America Online's fourth quarter earnings report -- The Bearish Binary, the Value Equation, and the Bullish Triad.
MF Merlin's Economic News today previews the major news releases scheduled for this week. 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 Primark. Enjoy!
The following calls are all for tomorrow, Tuesday, August 13th.
J.C. PENNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %>
8:00 a.m. EDT
1-800-232-8641 -- live
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
after 10:00 a.m. EDT
1-402-220-6028
WAL-MART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %>
10:00 a.m. - 1:00 p.m. EDT
1-800-633-8284 (code: 1882323)
APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %>
after 8:30 p.m. EDT
1-800-642-1782 (code: 951947)
Gearing up for an era of deregulation, the utility industry continues to consolidate from a lot of small, single-focus regional players into fewer large, multiservice panregional companies. Electric utility NORAM ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAE)") else Response.Write("(NYSE: NAE)") end if %> powered up $2 7/8 to $14 1/2 after natural gas concern HOUSTON INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOU)") else Response.Write("(NYSE: HOU)") end if %> acquired it in a $3.8 billion deal. Noram Energy holders will get $8 in cash and $8 in Houston Industries stock per share. This multiservice deal allows the two companies to provide consolidated service in their joint geographical areas, the second deal of this kind this year. In related news, ATLANTIC ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATE)") else Response.Write("(NYSE: ATE)") end if %> and DELMARVA POWER & LIGHT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEW)") else Response.Write("(NYSE: DEW)") end if %>, two small power utilities in slow-growth geographical regions, have also agreed to merge. Shares of Atlantic rose $7/8 to $18, while Delmarva hardly budged, up $3/8 to $21.
Shares of CHECK POINT SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHKPF)") else Response.Write("(NASDAQ: CHKPF)") end if %> and NETEGRITY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETE)") else Response.Write("(NASDAQ: NETE)") end if %> popped up $2 1/4 to $28 1/8 and $3/4 to $3, respectively. The reason? The companies extended their two-year partnership further, joining forces to offer NeTegrity's Interent security services which will use Check Point's Firewall-1 software. "We are very excited about expanding our relationship with Check Point Software, the dominant leader in the firewall security market," said Barry N. Bycoff, President and CEO of NeTegrity. "Check Point has established a significant customer base within Fortune 1000 accounts who can greatly benefit from the security support services and programs that NeTegrity has to offer."
Maybe the concept is finally taking off. FUNCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FNCO)") else Response.Write("(NASDAQ: FNCO)") end if %>, purveyor of "previously-played" (read: used) video games and related equipment, gained $1 1/4 to $8 1/2 today on a Piper Jaffray upgrade from "market performer" to "buy." The retailer posted a first quarter loss of $0.05 per share, considerably better than the year-ago loss of $0.21 per share. Piper Jaffray called the results "exceptional," and expects to see the firm lose only $0.04 per share in the second quarter.
QUICK TAKES: KASH N' KARRY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KASH)") else Response.Write("(NASDAQ: KASH)") end if %> rebounded $3 to $24 after getting waxed last week following the termination of merger discussions with FOOD LION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FDLNA)") else Response.Write("(NASDAQ: FDLNA)") end if %>. Investors are apparently hopeful that another merger candidate will come along... Investors rode RIDE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RIDE)") else Response.Write("(NASDAQ: RIDE)") end if %> up $1 3/4 to $12 1/2 after the snowboard company named Robert Hall as its new President and Chief Executive Officer (CEO)... Some free advertising on the pages of the New America in Investor's Business Daily boosted shares of ICTS HOLLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ICTSF)") else Response.Write("(NASDAQ: ICTSF)") end if %> this morning, pushing shares of the "enhanced security" service up $1 13/16 to $12 1/16... MILLENNIUM PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MLNM)") else Response.Write("(NASDAQ: MLNM)") end if %> shares jumped $ to $ on an initial "buy" rating from Robertson Stephens today... CLAYTON WILLIAMS ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CWEI)") else Response.Write("(NASDAQ: CWEI)") end if %> surprised analysts who had expected second quarter earnings of $0.23 per share by reporting a full $0.32, and rising $1 to $11 1/4... Semiconductor memory device maker XICOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XICO)") else Response.Write("(NASDAQ: XICO)") end if %> advanced $1 5/8 to $11 after Salomon added the company to its small-cap recommended list.
What's a good way to lose half your market value all of a sudden one morning? IVI PUBLISHING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IVIP)") else Response.Write("(NASDAQ: IVIP)") end if %> found out, crushed for $1 1/4 to $1 5/8 today. The online health and fitness publisher discovered that AT&T had discontinued the AT&T Healthsite -- IVI's bread and butter. The company called this a "sudden and totally unexpected" change of direction, and said that it would continue to publish its content, on its own website.
SPINE-TECH INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYN)") else Response.Write("(NASDAQ: SPYN)") end if %> shares tumbled $3 1/8 to $19 7/8 after Hambrecht & Quist analyst Robert Faulkner downgraded the medical device developer from "strong buy" to "buy." Faulkner noted that Spine-Tech's soon-to-be-launched Bak-L spinal fusion cage is expected to receive Food & Drug Administration (FDA) approval and may become an extremely successful orthopedic product. However, Faulkner noted that the company's current risk-reward profile is less attractive than it was before the sector's recent sell-off.
Shares of professional staffing and high-tech consulting firm COMFORCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CFS)") else Response.Write("(AMEX: CFS)") end if %> fell $1 1/8 to $17 3/8 after the company announced plans to acquire privately-held AZATAR Computer Systems. Christopher P. Franco, Executive Vice President of COMFORCE, commented, "The agreement with AZATAR marks the continuation of our ongoing strategy of making accretive acquisitions, and brings us closer to our goal of becoming the leading provider of staffing, consulting and outsourcing solutions to the high-technology sector."
QUICK CUTS: Shares of sports apparel and shoe retailer FINISH LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FINL)") else Response.Write("(NASDAQ: FINL)") end if %> were mashed for $1 11/16 to $24 1/2 as weakness in overall retail sales began to gnaw at some of the higher-flying specialty retailers... FIRST BRANDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FBR)") else Response.Write("(NYSE: FBR)") end if %> was treated like a Glad garbage bag today, falling $2 5/8 to $22 3/8 after RUBBERMAID <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBD)") else Response.Write("(NYSE: RBD)") end if %> announced it was getting into the trash bag business. TENNECO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEN)") else Response.Write("(NYSE: TEN)") end if %>, the maker of Hefty, was not junked, however... HMO arranger HEALTHSOURCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HS)") else Response.Write("(NYSE: HS)") end if %> shares slipped $7/8 to $13 5/8 after the company reported $0.12 per share for its second quarter, compared with $0.20 in the year-ago quarter and $0.12 expected by analysts. Two weeks ago analysts were expecting $0.23, before the company warned of higher costs and premium deflation... Auto seat-maker DOUGLAS & LOMASON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DOUG)") else Response.Write("(NASDAQ: DOUG)") end if %> shares retreated $2 3/4 to $21 1/4 after last week's surge on rumors of a buyout... COMPUTER LANGUAGE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLRI)") else Response.Write("(NASDAQ: CLRI)") end if %> dropped $1 to $9 3/4 after posting a second quarter loss of $0.08 per share when analysts had expected a gain of $0.28. Ouch... Bomb detection firm INVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVN)") else Response.Write("(NASDAQ: INVN)") end if %> continued its recent descent, down $3/4 to $18 1/2.
An Investment Perspective by
Randy Befumo
(MF Templar)
FOOL ON THE
HILL
Primark Acquisitive Strategy
The merger between electric utility NORAM ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAE)") else Response.Write("(NYSE: NAE)") end if %> and natural gas concern HOUSTON INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOU)") else Response.Write("(NYSE: HOU)") end if %> had me thinking of Joe Kasputys, Chief Executive Officer (CEO) of PRIMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMK)") else Response.Write("(NYSE: PMK)") end if %>. The sudden urge to merge between members of slow-growth industries in order to spur some profit growth is deliciously ironic when you see the kind of returns that Kasputys has generated out of a corporate shell that started 1988 as a natural gas utility. Whereas droves of utility executives have only recently started to see the handwriting on the wall, Kasputys took steps nearly eight years ago in order to transform Primark from a boring gas provider into an exciting diversified information services provider.
Investors might have noticed Primark today as well, although not for the deliciously ironic reason it came to mind for me. Shares of the company were up $2 5/8 to $29 3/4 today on the news that it had nabbed the Yankee Group, a computer consulting firm, for $34 million in cash. Yankee did $14 million in revenues in fiscal 1995, meaning that Primark did the deal for a little more than 2.0 times sales. The stipulations on the agreement help investors understand why Primark was willing to go up to two times sales initially -- if Yankee grows at 35% per year for the next three years, Primark will give the owners of the Yankee Group $34 million for a company that will have $34 million in revenues.
Investor attention to Primark's purchase simply helps to bring this relatively-unknown provider of global information services into the limelight. Since it divested all non-information business in 1989, Primark has been on the acquisition trail. The company acquired high-end information systems engineering firm TASC in 1991 and made this company its core technology competence, nailing Datastream (Europe's Bloomberg), Disclosure, I/B/E/S, Vestek (institution investment software), Worldscope (EDGAR for foreign companies) and WSI Corp., the primary provider of real-time weather information for the U.S. media (including CNN, local TV and radio and so on).
The company's stated business plan is to use TASC as its technological engine to perfect the software of its various information providers, as well as creating customer entrees for its information services by doing systems integration work. This symbiotic relationship works the other way as well, particularly when Primark is dealing with a customer of one of its acquired units and they seem to have some other information or systems integration needs. Yankee Group, a market research firm in the computer and communications field, reminds me quite a bit of DataQuest, which is owned by the GARTNER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GART)") else Response.Write("(NASDAQ: GART)") end if %> -- a company which has allowed Gartner to leverage its brand name and approach those customers with all sorts of other products.
Primark's products are ready-made for the Digital World as well, with almost all of its information providers able to put their data up on the Web profitably. The information is proprietary and they have TASC to back them up in putting it all online, enabling them to sell almost everything either by individual subscription (Disclosure, I/B/E/S, Datastream) or by allowing various providers to license the information (WSI for various real-time weather features on proprietary services). You can reach Disclosure right now on America Online, MSN and CompuServe, for instance.
The firm also has a high percentage of management ownership, another positive factor. According to a report written by Peter Appert of Alex. Brown, 14% of the shares (including options) are currently held by five senior officers, with 8% held by Kasputys himself. The management team has a keen interest in increasing shareholder value in this particular situation but lacks the overbearing presence that too much equity ownership can create, which would stultify the company under one domineering vision. In fact, 10% to 20% executive ownership is almost perfect, in my read, putting Primark squarely in the middle of the virtuous range.
I really think that the best comparison out there for Primark is the highly-successful Gartner Group, as the only other real peer has yet to trade separately as a public company (Cognizant Corp., soon to be spun out of Dun & Bradstreet). The acquisition of Yankee Group requires we refigure Primark's trailing revenues and earnings before comparing them to the Gartner Group. With $14 million in trailing revenues, it is reasonable to assume Yankee had 10% margins, bringing $1.4 million to the bottom line in 1995. On Primark's 23.5 million shares, that would buff up their trailing earnings to about $1.04. Assuming they hit the 35% growth target for next year, we are looking at estimates being upgraded by about $0.08 to $0.10 EPS to the $1.50 to $1.52 range in the wake of this acquisition.
All of this refiguring gives us a company trading at 29.2 times trailing earnings, 1.2 times sales and 1.5 times Enterprise Value (which counts the company's 25% debt-to-equity ratio against it). If it can make $1.51 in the next fiscal year, six quarters away, we have a company trading at 20 times earnings. The long-term growth rates are currently 20% for the company, but the simple fact is that it has been growing at 25% to 30%-plus for quite some time, implying that the 20% compound annual growth rate is a low-ball number. Compare all of these figures to the Gartner Group, which trades at 75 times trailing earnings, 8.81 times Enterprise Value, 49.25 times forward earnings with an estimated compound annual growth rate of 35 times, growing at 50%-plus a quarter.
Despite the fact that Gartner's growth rate is two times Primark's, all things being equal, Primark's valuation looks fair while Gartner's looks quite rich. Add in the argument that Gartner deserves a higher valuation because 90%-plus of its revenues are recurring information services fees and you have a case for Primark being a $37 stock, about 25% up from where it is today. While not exactly a compelling risk-reward trade-off at this point, the stock looks better the longer your time period gets. Kasputys has done quite well thus far and the shares probably have excellent potential over a three- to five-year time period, particularly relative to their information services brethren, Gartner Group. At the very least, it's a stock to watch closely and to compare with Cognizant Corp.'s valuation when this company is spun out of Dun & Bradstreet, if you want an information services concern in your portfolio.
Randy Befumo (MF Templar),
a Fool
Fool On the Hill
Selena Maranjian (MF Selena),
a Fool
Heroes & Goats & Editing
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