When it rains, it pours for tobacco stocks. If last week's Florida jury decision was not enough, this week promises to bring all kinds of uncertainty. Kansas, Arizona and Michigan have all jumped on the state-lawsuit bandwagon, rumors leaked that the President will fully authorize the Food & Drug Administration to regulate smoking, and tomorrow an Indiana jury will decide whether the tobacco industry is responsible for the death of Richard Rogers, an Indiana resident who died of lung cancer. This run on Big Tobacco recalls the February and March debacle which sent the shares spinning down near 52-week lows when the Justice Department got promotional and the states aligned against Big Tobacco started pushing the Costanzo class-action suit hard.
What does all of this mean for an investor in tobacco shares? Potentially, quite a bit. The most dramatic overhang today will be the decision in the Indiana case, which is due sometime this afternoon. The original suit ended in a hung jury, with five of the six jury members voting for a conviction on all counts of the indictment, including negligence and making a defective product. A motion to add punitive damages to the suit was denied yesterday as Judge Kenneth Johnson did not believe the "preponderance of evidence' required under Indiana law was present in this case. Although another anti-tobacco jury verdict would simply work its way up to the state appeals court on its way to the federal appeals court and the Supreme Court if not overturned along the way, the second decision could be a psychological blow to investors in the shares.
Regardless of your opinion on tobacco, I maintain the contrarian opinion that any decision to extract money from the tobacco companies by the states will effectively be a tax hike on their profits and that any additional regulation by the government, up to and including requiring prescriptions to smoke, will simply cement the absolute market dominance of the existing tobacco companies. Only the prospect of thousands of individual law suits with punitive damages threatens to overwhelm the combined legal defenses of the industry, but it is difficult to ascertain how much the Florida jury decision had to do with law and how much it had to do with a rising tide of negative popular sentiment. Although juries certainly are in place to interpret law, they cannot make law, making the durability of any convictions on the appeals court level questionable at the least. And with class-action suits against tobacco companies effectively denied, these individual suits will all need to be financed and work their way independently through the legal system. The endgame in all of this has yet to play out.
UPS
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Zounds! ZENITH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> shares surged $4 3/8 to $15 3/4 on news that Americast has agreed to buy at least 3 million set-top boxes for its home entertainment service. Americast is a joint project of AMERITECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %>, BELLSOUTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %>, GTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %>, SBC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBC)") else Response.Write("(NYSE: SBC)") end if %> and WALT DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>, and the deal is valued at over $1 billion.
SUNGLASS HUT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAYS)") else Response.Write("(NASDAQ: RAYS)") end if %> is basking in the sun after beating analyst estimates by a penny, reporting $0.36 per share for its second quarter and advancing $1/2 to $15 5/8. A year ago, the company earned only $0.15 in its second quarter.
Shares of arterial sealing device-maker KENSEY NASH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KNSY)") else Response.Write("(NASDAQ: KNSY)") end if %> popped up $2 to $13 on an initial rating of "buy" from Smith Barney.
BOSTON CHICKEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BOST)") else Response.Write("(NASDAQ: BOST)") end if %> had Wall Street clucking today, rising $1 to $31 5/8 on news that it is tripling its plans for opening new stores, and will open 2,700 units in the next five to seven years, effectively quadrupling the number of existing stores. Merrill Lynch reiterated its near- and long-term "buy" ratings.
Oppenheimer raised its estimates for DURA PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DURA)") else Response.Write("(NASDAQ: DURA)") end if %> after the company signed a pact with ELI LILLY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %> to acquire the right to market the antibiotics Keftab(R) and Ceclor(R) CD made by Lilly for roughly $100 million. Dura shares rocketed $5 3/4 to $32 1/2.
PHYSICIAN SUPPORT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHSS)") else Response.Write("(NASDAQ: PHSS)") end if %> rose $1 1/2 to $20 1/4 on an initial "strong buy" rating from Cowen & Co.
News that VERITAS SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VRTS)") else Response.Write("(NASDAQ: VRTS)") end if %> will see its software included in MICROSOFT'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> Windows NT sent shares up $4 1/4 to $44 1/2.
Recently-beleaguered storage technology concern IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMEGA)") else Response.Write("(NASDAQ: IOMEGA)") end if %> saw its shares rebound $1 7/16 to $14 1/2 today on no particular news. Shares have fallen significantly after the company's earnings beat estimates of Wall Streeters but disappointed those of Fools.
BIOMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BMRA)") else Response.Write("(NASDAQ: BMRA)") end if %> reported fiscal 1996 earnings of $0.12 compared with $0.03 last year, and the maker of 5-minute prostate cancer screening tests was rewarded with a $7/8 to $5 rise.
Shares of MYRIAD GENETIC LABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MYGN)") else Response.Write("(NASDAQ: MYGN)") end if %> jumped $3 3/8 to $23 1/4 in anticipation of President Clinton signing a law which prevents genetic information from being applied in health insurance decisions. Myriad makes genetic sequencing analysis systems which test for cancer susceptibility, among other things.
DOWN
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SDL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDLI)") else Response.Write("(NASDAQ: SDLI)") end if %> shares careened Southward today, off $12 to $16 on news that Cowen & Co. had cut its 1996 earnings estimates for the semiconductor circuit and laser-maker from $0.81 per share to $0.68. Cited were third quarter product yields.
While analysts expected electro-optical device maker ZYGO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZIGO)") else Response.Write("(NASDAQ: ZIGO)") end if %> to earn $0.46 per share in its fourth quarter, the company posted a little more than that, $0.48. Zygo, which has increased its number of shares outstanding by 25% in the last year or so, saw its shares slump $2 1/2 to $32 1/4. Alex. Brown downgraded the company from "strong buy" to "buy."
CRACKER BARREL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CBRL)") else Response.Write("(NASDAQ: CBRL)") end if %> shares slipped $1 to $22 1/2 when the company warned that it would take a $0.15 per share charge for its fourth quarter, due to the expenses of closing underperforming stores. The company plans to open 50 new stores in 1997 and expects to earn $0.43 to $0.45 per share, excluding the charge, in the fourth quarter.
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