In today's Lunchtime News, the Fool Plate Special featured a look at the recent slide of the temporary staffing sector, following downgrades and estimate revisions. Earnings Central has an interesting pair of new calls -- Microsoft and Apple both held conference calls on their computing appliance products yesterday. We've got synopses of both. In tonight's Fool on the Hill, MF Templar takes a look at a company facing litigation -- Archer Daniels Midland. Enjoy!
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MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> rose $2 1/8 to $27 1/2 after the company announced last night that it has filed a request for the Department of Commerce to investigate the sales practices of Korean DRAM makers. Micron has charged L.G. Semicon (Lucky Goldstar) and Hyundai with dumping the products below cost on the US market. The shares may also be up on short covering, as the company reports earnings after the closing bell today.
ETHAN ALLEN INTERIORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ETH)") else Response.Write("(NYSE: ETH)") end if %> surged $3 1/8 to $30 5/8 on the company's guidance for the coming quarter. Unlike lower-margin furniture retailers such as HEILIG-MYERS (HMY), which create a good deal of earnings from their high-interest/higher-risk credit customers, Ethan Allen is a vertically-integrated furniture retailer. As such, it saves money by owning its own sawmills, manufacturing 90% of its merchandise, and controlling the distribution channel through its stores. The First Call estimate for Ethan Allen's earnings per share (EPS) was $0.43 before the company guided estimates up to the $0.53-to-$0.55 range for the first quarter.
INTERSTATE BAKERIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBC)") else Response.Write("(NYSE: IBC)") end if %> rose to a nice golden brown of $36 3/4 from $33 after reporting much-stronger-than-expected earnings for the first quarter. Interstate made $0.49 per share, $0.10 more than analysts were looking for. Though the quarter only included five weeks of operations of the newly-acquired Continental Baking Company (which brought the brands Twinkies, Hostess Cup Cakes, and Wonder Bread into the IBC fold), sales were up 60% year to year and EPS was up 133%.
Canadian-based funeral services company LOEWEN GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LWNG)") else Response.Write("(Nasdaq: LWNG)") end if %> is resisting the $43-per-share offer of SERVICE CORP. INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRV)") else Response.Write("(NYSE: SRV)") end if %>. Nonetheless, arbitrageurs and investors have narrowed the spread between the bid and the market price, indicating that they think the deal can be done or that another company will come in and offer more for Loewen. Loewen advanced $2 5/8 to $42 3/8.
QUICK TAKES: Making a large move of $2 1/4 to $11 3/8 per share was DIAMOND MULTIMEDIA SYSTEMS<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIMD)") else Response.Write("(Nasdaq: DIMD)") end if %>, which recently broke the $100 price barrier with its Supra 28.8 baud (bps) modems, cut prices on its 33.6 bps modems, and announced support for Rockwell's 56 kbps modem chip... PHP HEALTHCARE<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPH)") else Response.Write("(NYSE: PPH)") end if %> advanced $2 1/8 to $27 5/8 on earnings that more than doubled last year's first quarter performance... Moving up $3 1/8 to$17 7/8, AMERICAN DISPOSAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADSI)") else Response.Write("(Nasdaq: ADSI)") end if %> backed analysts' fiscal year estimates and also discussed its acquisition strategy designed to grow yearly revenues by 50-60%... QUARTERDECK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDEK)") else Response.Write("(Nasdaq: QDEK)") end if %> traded up $2 1/8 to $8 1/8 today on the strength of two product announcements. Known lately for its browser software, the company released two software utilities and announced that it had won an award at the NetWorld+Interop '96 show in Atlanta... IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IOMG)") else Response.Write("(Nasdaq: IOMG)") end if %> shot up $3 to $17 7/8 today as the company announced that its internal Zip drives for OEM'ed PCs will be fully-bootable as the A: drive... Semiconductor capital equipment maker AG ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGAI)") else Response.Write("(Nasdaq: AGAI)") end if %> jumped 24% to $7 1/8 on word that it has sold several of its Heatpules rapid thermal processing systems for DRAM fabrication... AMERICA ONLINE has shown strength every day since it arrived on the New York Stock Exchange on Monday. Today was no different, as the stock moved up $3 3/8 to $33 1/8.
FISCHER IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FIMG)") else Response.Write("(Nasdaq: FIMG)") end if %> got mangled today, plunging $5 1/8 to $6 1/2 after a preliminary announcement that third quarter results would be "flat." Revenues grew only 4% from the year-ago period for the Denver-based maker of specialty and general purpose X-ray imaging systems. The company, which came public in June, cited low order rates across its product line as the reason for the revenue shortfall. Chairman and Chief Executive Officer (CEO) Morgan Nields added, "We are taking necessary actions to reduce expense levels."
Shares of EDMARK CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EDMK)") else Response.Write("(Nasdaq: EDMK)") end if %> were down $1 3/4 to $12 3/4 today. The beleaguered children's educational software concern watched its shares run up almost 30% late last week, after the resignation of CEO and Chair Sally Narodnick fueled speculation that it might be a takeover target. Edmark shares were riding at high at $50 1/2 in October 1995, but increased competition with larger rivals like DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> and BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> has taken its toll.
VERSANT OBJECT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSNT)") else Response.Write("(Nasdaq: VSNT)") end if %> finally got a bit of bad news today, falling $1 1/8 to $25 5/8. The objects database management systems (ODBMS) provider has benefited from a strong second quarter earnings report and a spate of positive brokerage ratings since its July 22 initial public offering (IPO), rising from $8 to yesterday's close at $26 3/4. Today's drop can be attributed to profit-taking in the face of the stock's 60% rise since Monday's announcement that SPYGLASS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPYG)") else Response.Write("(Nasdaq: SPYG)") end if %> would integrate Versant's software into its Surfwatch ProServer.
QUICK CUTS: ALLIED WASTE INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AWIN)") else Response.Write("(Nasdaq: AWIN)") end if %> fell $1 3/8 to $8 1/8 in what amounts to the hangover after yesterday's big acquisition of LAIDLAW INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LDW.A)") else Response.Write("(NYSE: LDW.A)") end if %>... Credit card network service provider TRANSACTION NETWORK SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNSI)") else Response.Write("(Nasdaq: TNSI)") end if %> announced an agreement to provide NATIONAL DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NDC)") else Response.Write("(NYSE: NDC)") end if %> with transaction transport services, but fell $2 11/16 to $15 5/8... ZENITH ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> dropped $1 to $15 5/8 after gaining ground yesterday on takeover rumors... NUEREX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NXCO)") else Response.Write("(Nasdaq: NXCO)") end if %> fell $2 3/4 to $17 1/4 after announcing testing delays for a new pain-relieving drug... SAES GETTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAESY)") else Response.Write("(Nasdaq: SAESY)") end if %> was down $2 17/32 to $15 on news that it would post significantly lower revenues. The company produces getters, which are used to remove gas traces from vacuum tubes and lamps... PC SERVICE SOURCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCSS)") else Response.Write("(Nasdaq: PCSS)") end if %> dropped $2 3/8 to $7 5/8 and has watched its stock lose 35% of its value since Monday, on no news we that can find. The company distributes parts used in computer repair.
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Litigation Babies, One of Two
The threat of litigation often clouds the minds of investors. Nothing causes Wall Street to turn tail and run more than the threat of a bona fide lawsuit. You would think from the severity of the reaction that shareholders might actually be personally liable if the company is found guilty. Although PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> is probably the most famous example of a wonderful growth vehicle held at a perpetual discount to intrinsic economic value because of the fear of litigation, it is far from the only example in the market. In an effort to explore the ramifications of litigation on the near-term market value of a company, we will take a look at ARCHER DANIELS MIDLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADM)") else Response.Write("(NYSE: ADM)") end if %> today and SUN HEALTHCARE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %> tomorrow.
The Archer Daniels Midland Story. Those who hanker for a return to a simpler, agrarian past should love Archer Daniels Midland. The giant agribusiness venture processes raw grain and seed into a variety of food additives and byproducts sold to almost every major food processor on the planet. They do it all, from pasta to ethanol. Despite its massive trailing sales of $13 billion, slow growth has yet to set into the Decatur, Illinois-based giant as only 25% of its sales come from overseas. The darn company is selling food, a commodity that goes pretty well almost anywhere you go. If COCA-COLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> has massive potential because the Chinese only quaff three Cokes a year on average, imagine how well noodles could do.
Price Fixing Unfixes Stock Price. Accusations that Archer Daniels had conspired with its three main global competitors to fix the price for lysine unhinged the stock last year, pushing the shares down from $17 to the $14 level in one bloody day. Lysine, a corn-based additive used to make livestock feed, is a massive global market with a very small number of players, making the price fixing a pretty simple exercise of getting three or four of the right people in a room together. Although the government's case looked shaky for a while when key inside witness Mark Whitacre self-destructed, admitting to millions of dollars in under-the-table compensation before he turned stool pigeon, the government looks to be handing down indictments to top Archer Daniels officials any day down. The company's three biggest global competitors were forced to pay fines of about $20 million total, although this could be upped when they face the judge later this month.
"Supermarket to the Street." The simple fact is that with $1.2 billion in the bank, even if ol' Archer Daniels has to pay ten times what its competitors did, the company can pay its fines, continue its stock-buyback program and not even worry about interrupting its one-percent dividend. No wonder the shares have rebounded to the $18 5/8 level, giving the company a $10.2 billion dollar market capitalization. No wonder the board recently gave Chairman Dwayne Andreas a raise. With high cash flow, systemic stock buybacks and a current aversion to pricing products too high for fear the Justice Department will get its dander in an uproar, one questions how much of the intrinsic value of the business is being reflected in the current quote.
The Numbers. At 0.77 times sales without netting out its sizable cash hoard, Archer Daniels is not exactly in the stratospheric valuation category. Sure, 13 times trailing and 12 times forward earnings look rich for a company growing at about 10% with a 1% dividend, but this is not a company that is going to have a negative earnings surprise because of a bad product launch. In 1992, Archer Daniels managed to trade near $17 on substantially lower earnings, bottoming out at $13 for the better part of two years. If an investor could simply get 10% earnings growth and a 1% dividend out of the stock for the rest of time, she would beat the historic return of the S&P. Should the valuation move more in line with that of other regular-as-clockwork conglomerates growing at 10% like ALLIED SIGNAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %> or GENERAL ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %>, you could have a sustainable price appreciation in the 12% to 15% range for the next decade.