Today's Lunchtime News dialed up a look at US Robotics, its recent rise, and the prospect of cheap 56Kbs modems. Earnings Central has a number of new conference call synopses, including TRO Learning, Youth Services Int'l, Circuit City, Intuit's Q4, Checkfree's call on their deal with Intuit, and America Online's call from yesterday. Speaking of that call, we've got a Special Section about AOL on the NYSE, which includes the call, pointers to financial information and the NYSE site, a transcript of Steve Case & Dick Grasso comments, as well as Foolish background content on AOL. In tonight's Fool on the Hill, MF Templar takes a look at the deal struck between Intuit and CheckFree yesterday. Enjoy
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ATMEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATML)") else Response.Write("(Nasdaq: ATML)") end if %> traded up $4 1/8 to $28 1/4 on very heavy volume as some market players might be reconsidering their outlook on the semiconductor sector. "Sector" might be a misnomer, to the chagrin of those who have confused the commodity downturn in DRAMs with this company that gains 40% of its revenues from non-commodity flash memory and EEPROM integrated circuits. Such chips are heavily design-intensive and as such, they do earn brand recognition and loyalty from customers (who use the chips in their products, which are often branded items). According to Greg Mischou at Alex. Brown & Sons, Inc., the company is not guiding estimates lower heading into the fourth calendar quarter, which is the busiest time of the year because of demand for the consumer goods into which these devices are built. Mischou reiterated his "strong buy" rating, pointing to some of these factors, the strength in complementary markets, and upcoming releases of new flash products. Even given last year's unusually strong fourth quarter, the mean estimate for Q4 1996 forecasts 45% EPS growth.
FEDERAL MOGUL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMO)") else Response.Write("(NYSE: FMO)") end if %> was up $2 to $18 3/4 on a Salomon Brothers upgrade in which the analyst identified the stock's "long-running underperformance" as a "catalyst for sweeping change within the company." While Federal Mogul recently sold a division and may be on its way to rationalizing more of its assets, oftentimes such investment theses are as flawed as saying "the Bills are due to win the Super Bowl because they've lost it so many times." Investors should identify positive catalysts rather than believe in false hopes that something's a bargain just because it's been earning sub-par returns for so long. Investors should really look at asset and earnings valuations, as well as profit margins and management quality, in relation to the rest of a group of similar companies, and then make a decision. (Editor's note: The above was written by a Buffalo native/Bills fan.)
Semiconductor companies were strong across the board today, boosted by INTEL'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> guidance toward 5%+ sequential revenue growth, which advanced shares of the chip giant $5 5/8 to $94 1/4. Tiny analog IC (integrated circuit) maker SEMTECH CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTC)") else Response.Write("(Nasdaq: SMTC)") end if %> finished up $1 7/8 at $10 1/2. Other semiconductor companies putting in strong performances were ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTR)") else Response.Write("(Nasdaq: ALTR)") end if %>, which advanced $4 to $52 1/8, and LINEAR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LLTC)") else Response.Write("(Nasdaq: LLTC)") end if %>, up $2 7/8 to $39. Intel's bullish comments also spurred sales in PC makers, with COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, and GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GATE)") else Response.Write("(Nasdaq: GATE)") end if %> each advancing approximately 5%.
QUICK TAKES: GENERAL EMPLOYMENT ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: JOB)") else Response.Write("(AMEX: JOB)") end if %> worked its way higher today, finishing up $1 3/4 at $13 1/8 as the board of directors declared a 15% stock dividend (giving investors an additional 0.15 share for every share they own) and reiterated guidance for a strong Q4 performance. SOLECTRON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> yesterday reported a 34% increase in EPS for the year just ended, earning a rating upgrade from Merrill Lynch. Solectron investors selected a new valuation for the stock, sending the shares up $5 3/8 to close at $47 3/8... RHODES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHD)") else Response.Write("(NYSE: RHD)") end if %>, the retail furnishings concern, had its trading halted late in the day and finished the day at $10 5/8, up $1 1/2. Though there was no news, a company spokesperson advised our Fool News team that there would be a press release later this evening... INTEGRA LIFESCIENCES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IART)") else Response.Write("(Nasdaq: IART)") end if %> finished up 26%, moving up $1 3/8 to finish at $6 5/8. Just a shot in the dark, but I'm going to guess that this is a biotech with an announcement pending... NOVA CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIS)") else Response.Write("(NYSE: NIS)") end if %> rose sharply to finish the day at $34 7/8, moving up $5 from yesterday's close. There was no news out of the company's headquarters... SOUTHERN UNION COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUG)") else Response.Write("(NYSE: SUG)") end if %> traded up $2 1/2 to $24 on no news or comment from the company.
Today's Lunchtime News looked at GILEAD SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GILD)") else Response.Write("(Nasdaq: GILD)") end if %>, the bio-tech firm which was down on what was seemingly good news coming out of the company. The reason behind the fall was revealed this afternoon in reports that the company's Vistide drug, which treats a virus which can cause blindness in AIDS patients, may cause kidney toxicity. Two patients using the drug developed serious kidney side effects, and one has since died, from complications of an advanced case of AIDS. A spokeswoman for the firm indicated that the patients were "probably not good candidates for Vistide," due to low levels of a key protein. Analysts have apparently known about the side-effects for some time, with one at Hambrecht & Quist indicating, "when it's properly managed, [Vistide is] a very good drug." Shares slumped $3 1/2 to $25 1/4.
Disability insurance concern PAUL REVERE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRL)") else Response.Write("(NYSE: PRL)") end if %> came riding down Wall Street today, to warn that its $1.2 billion acquisition by PROVIDENT COMPANIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PVT)") else Response.Write("(NYSE: PVT)") end if %> would be delayed from the third quarter to at least the fourth quarter. It then watched its stock drop $2 to $26 3/4, near its pre-acquisition announcement level. The time necessary to examine Paul Revere's individual disability reserves is being cited as the reason for the delay.
In continuing fallout from the investigation to determine whether Arkansas poultry giant TYSON FOODS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TYSNA)") else Response.Write("(Nasdaq: TYSNA)") end if %> made illegal gifts of free travel and football tickets to then-Secretary of Agriculture Mike Espy, a federal grand jury indicted a Tyson Foods lobbyist on charges of making false statements to federal investigators. The indictment also names company founder, Don Tyson, but does not accuse him of any wrongdoing. The stock was plucked for $1 to $25 3/4.
QUICK CUTS: MANPOWER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAN)") else Response.Write("(NYSE: MAN)") end if %> got its earning estimates downgraded today by a Robert Baird analyst and dropped $4 1/8 to $30 3/8... Mega-entertainment complex operator DAVE & BUSTERS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DANB)") else Response.Write("(Nasdaq: DANB)") end if %> received today what is turning into an investment kiss of death -- it made First Call's list of Analysts' Highest-Ranked Stocks, achieving the highest rating, and dropped $2 1/2 to $21 7/8... Aerospace component manufacturer ROHR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHR)") else Response.Write("(NYSE: RHR)") end if %> descended $1 7/8 to $20 3/4 after reporting a fourth quarter loss of $0.07 yesterday and today announcing that it would be offering $50 million of new stock to fund pension funds... PYRAMID BREWERIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMID)") else Response.Write("(Nasdaq: PMID)") end if %> was dropped $1 1/8 to $6 7/8 after reporting poor earnings for the third quarter... CD manufacturer NIMBUS CD INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NMBS)") else Response.Write("(Nasdaq: NMBS)") end if %> gave guidance that second quarter earnings growth would be flat due to high inventory at retailers and slowing reorders, and fell $2 1/4 to $11 7/8... Morgan Stanley downgraded shares of ADVENT SOFTWARE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVS)") else Response.Write("(Nasdaq: ADVS)") end if %> to "neutral" from "outperform," sending the stock down $1 5/8 to $30 5/8... Shares of 3-D seismic data acquisition system maker INPUT/OUTPUT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IO)") else Response.Write("(NYSE: IO)") end if %> met consensus estimates of $0.22 per share and was dropped $1 5/8 to $31 7/8.
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Partners, Not Competitors:
The CheckFree & Intuit Story
Yesterday's surprising announcement that INTUIT<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> had decided to sell Intuit Services Corp.(ISC) to CHECKFREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKFR)") else Response.Write("(Nasdaq: CKFR)") end if %> forabout $270 million in stock as of market close today set the online financial marketplace on its ear. For months we have heard incessant tough-talk from Intuit about how they have become number one in short order in every area they have ever competed. The growth of ISC was compared to CheckFree's again and again, arriving at the same conclusion -- CheckFree was the doddering old player with anemic growth and Intuit was the young, vibrant stallion chomping at the bit to run the race. Now that is all over. Intuit holds 23% of CheckFree's shares and CheckFree has become the leading provider of online banking services to consumers -- plus quite a bit more.
The Deal From CheckFree's Side
WHAT'S IN IT FOR CHECKFREE? This one is pretty simple to handicap -- CheckFree loses a competitor, gains a strategic partner, and buys some assets for stock. Not a bad day at the races. With this acquisition, CheckFree has proven that its "non-interference" strategy of providing services to the banking industry was the correct one after all. The company is now the "go to" place for home banking and bill payment processing, "regardless of... interface or systems" being employed. It now does home banking and electronic bill payment for more than one million customers based out of more than 180 financial institutions, securing Quicken's installed base of six million-plus. CheckFree doesn't exactly win the gold for having the right plan all along, though. With the company's recent sale of its securities unit to SUNGARD DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNDT)") else Response.Write("(Nasdaq: SNDT)") end if %> it seems pretty clear that it is making its master plan up as it goes along.
COMBINED COMPANIES ACCELERATE GROWTH. CheckFree was talking tough yesterday in its conference call but its math did not add up to subscriber growth. With ISC's 350,000 users, it is now over the one million mark. However, CheckFree stressed that it was going to do this anyway and would hit 1.1 to 1.2 million by the end of the quarter. How it could have hit one million, when an addition of 350,000 would only get it to 1.1 or 1.2 million, really does not compute that well, but the question is simply academic now. With the assets and relationships of both companies, CheckFree has the critical element in taking the high ground in "technology-space" -- namely, market share. Right now, the company serves about 1.1% to 2.0% of all households. It projects a market penetration of 6% by the end of 1997.
THE FINANCIALS. ISC is still gonna lose money in fiscal 1997, although CheckFree contends that it will lose a lot less now that it is being integrated into CheckFree operations. However, full integration of ISC will take up to 18 months in order not to upset touchy banking partners. CheckFree deferred to analyst projections of cash-flow positivity in fiscal 1998 -- a little more than a year from now. With a market capitalization of about $850 million, net cash, it is no wonder the company used stock for this transaction. With no earnings, this cash-flow negative business model which is selling for a little more than 11 times sales is not an undervalued company by any traditional yardstick. When Intuit releases restated financials showing exactly how much of its revenue from the past year came from discontinued operations, we will be able to figure how much revenue CheckFree just bought with this deal. It is my assumption that the price/sales ratio, net the unit sold to Sungard Data Systems, will still be 9-plus, making for a very stratospheric number.
INTEGRION INTEGRITY? The Integrion alliance that had shareholders of Intuit so scared two weeks ago looks a lot less threatening to the combined ISC/CheckFree concern. CheckFree is already working with many of the banking members of the NationsBank, BankOne, Key Corp, Bank of America, and IBM alliance. CheckFree remains the provider of choice for many of these partners and stressed that the Integrion alliance is non-binding -- banks can go outside the alliance for processing if they desire. Given that Integrion is still a nebulous idea contained on various scraps of paper, CheckFree was pretty cavalier with its prospects, stating that "at this stage, [we] feel that Integrion may or may not compete with some of [our] services."
The Deal From Intuit's Side
"TIRED MANAGEMENT." These were the words one anonymous sell-side analyst used to describe the executive team over at Intuit. Realizing that its package of front-end software combined with back-end processing and transactions threatened almost all of its partners, Intuit decided that its partners would never work with the company fully if they viewed it as a threat. A few late-night planning sessions at Intuit apparently yielded the realization that they were a software company, that they were probably best off focusing on the software, and that they had this home banking and electronic bill-paying subsidiary they now needed to get rid of. Intuit's decision to stick to its software knitting and to not try to take over the world of electronic commerce as we know it is a little disappointing, but a pragmatic move that takes into account what they are capable of.
INTERNET INITIATIVES. In a strategy that appears to have been copied from Microsoft's playbook, Intuit will open all of its software products to the Internet and create OpenExchange, a series of specifications that will be licensed for free and without restriction to financial service providers. OpenExchange is essentially an operating system that allows the financial service companies to do their transactions however they want with whomever they please in a secure and open environment. The free licensing deal could theoretically end some day, after the financial providers are hooked, but until then Intuit will use the fact that people will be on its protocols to accelerate the adoption of Quicken as the front-end of choice. Regardless of the success of OpenExchange, the fact that it is going to be licensed for free turns Intuit into a software company again, with 100% of its revenues coming from software packages used by consumers and businesses. Intuit did put out some confusing information to the effect that financial providers will pay Intuit to be part of "market spaces" and will receive part of "transactions," but this sounds like Intuit is planning on its various mutual fund, insurance, mortgage and Quicken Web sites to generate these dollars.
THE FINANCIALS. Intuit ended its fiscal year with $552.9 million in revenues, up 30% from year-ago levels. Excluding acquisition charges, the company reported net income of $0.59 EPS compared to $0.63 EPS a year ago. All of this needs to be restated for ISC's discontinued operations, which should decrease revenues and boost earnings, as ISC was a money-loser. With about 48.5 million shares outstanding, fully-diluted, Intuit is worth $1.6 billion as of market close today. The company has about $198 million in cash, $270 million in CheckFree stock and about $440 in working capital. Net cash and stock, the company is trading at 2.0 times trailing sales and about 1.75 times next year's sales. The company anticipates about $0.79 EPS in earnings for next year and a little more than a dollar the year after, putting the stock at 42 times forward earnings. Sans the transaction piece of the business, this seems to be a rich, but potentially sustainable, multiple. Given that this is a company Microsoft tried to buy a year and a half ago for $40 a share, the potential of an acquisition by a large, consumer- and business-oriented software giant is always hanging out there -- especially with CheckFree now as established in the home banking niche as it is.