HEROES
CREE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CREE)") else Response.Write("(NASDAQ: CREE)") end if %> was one of the stocks lighting up the Nasdaq movers list today, hitting $14 before closing up $5/8 at $12 7/8. The North Carolina company makes semiconductors, Super Blue LEDs, and other micro devices from compounds such as gallium nitride and silicon carbide, which is the third-hardest substance known to humans. Such devices are used in engines, spacecraft, and other harsh-environment applications and are also well-suited for very high frequency applications, where the energy characteristics of the waveforms passing through chips can destroy other compounds. Sumitomo, the US Navy and Air Force, and Siemens have all signed contracts with Cree in the last ten days. In addition, the company has made progress with a process that held back revenues in the fourth quarter of 1996.
Contract operator/cargo/passenger airline WORLD AIRWAYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WLDA)") else Response.Write("(NASDAQ: WLDA)") end if %> rose $3/4 to $8 3/4 after announcing a 1 million share buyback today. The company's management feels that its valuation is too low compared with similar airline ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATLS)") else Response.Write("(NASDAQ: ATLS)") end if %>. World recently won a three-year, $90 million+ contract with a Malaysian carrier. Both have trailing revenues around the $250 million mark, though World appears to turn its assets at a much smarter clip. Fixed assets at World Air are much smaller, so the company's asset and equity base appears much smaller than that of Atlas. For those who feel that "bricks and mortar" are somehow necessary for a balance sheet to have some heft, the fact that World has far less debt makes its enterprise value look that much more reasonable than Atlas's. For more airlines talk, head on over to the Motley Fool's Industry Updates Area.
JABIL CIRCUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JBIL)") else Response.Write("(NASDAQ: JBIL)") end if %> jumped $3 3/4 to $22 1/4 today as the company reported excellent operating profits in a year that has been very trying. During the early part of the fiscal year, disk drive-maker QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QNTM)") else Response.Write("(NASDAQ: QNTM)") end if %> canceled a $60 million contract as it shut down some of its operations. At the same time, the slide in DRAM and movements toward inventory liquidation in customers' operations further challenged the company. Year over year, Jabil's sales were down, and sequentially, sales fell 20%+ in 90 days. However, the company actually maintained or accelerated per-share earnings levels, and blew away earnings estimates by a 50%+ margin today on better gross margins, while improving the balance sheet on steady inventories. This is a prime example of the outcomes of investing in management versus investing in "technology."
QUICK TAKES: Non-invasive biomedical device-maker EMP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EMPI)") else Response.Write("(NASDAQ: EMPI)") end if %> advanced $1 to $15 1/4 after reporting third quarter earnings of $0.28 per share, two pennies ahead of estimates. Net income was up 13% over the year-ago quarter, and the firm plans to continue buying back shares... Shares of telecom concern TELLABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TLAB)") else Response.Write("(NASDAQ: TLAB)") end if %> popped up $6 to $79 after the company blew away estimates, reporting $0.50 per share, seven cents ahead of expectations, and garnering an upgrade to "buy" from Robinson-Humphrey... Semiconductor plant automation company PRI AUTOMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRIA)") else Response.Write("(NASDAQ: PRIA)") end if %>, up $2 1/4 to $34 3/4, received a reiteration of Hambrecht & Quist's "buy" recommendation yesterday. The brokerage pointed to Intel's Israeli investments, but Hyundai's announcement of a $3.6 billion DRAM investment in the UK doesn't hurt, either.
GOATS
Get me an investment banker, STAT! AMERICAN MEDICAL RESPONSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMT)") else Response.Write("(NYSE: EMT)") end if %> fell $4 to $30 1/2 as the company announced that it would merge with STAT HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STHC)") else Response.Write("(NASDAQ: STHC)") end if %> in something of a cradle-robbing move. In just a few months' time, STAT had come public, filed for a secondary offering, and is now merging with the largest provider of mobile emergency services in the US. While STAT's revenues will have grown 50% in 1996, it is still about 1/10th the size of American Medical Response. The merger ratio calls for 0.25 shares of American for each STAT share, which values the deal at about four times STAT sales, while American's market cap right now puts the company's value at a little more than one times sales. Secular growth vs. acquisition growth... ahh, the eternal question. The acquisitive American Medical might be going for the pricey secular growers instead of the staid ambulance sector in which it has always hunted. The complementary aspects of the acquisition are apparent enough, though. Shares of STAT fell $7/8 to $7 3/8.
WESTELL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSTL)") else Response.Write("(NASDAQ: WSTL)") end if %> continues down on the express elevator known as the stock market, falling another $4 1/2 to $24 5/8. Some facts should probably be pointed out on a day that Westell continued to fall and PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PAIR)") else Response.Write("(NASDAQ: PAIR)") end if %> dropped $6 1/2 to $74 1/4 on "bad earnings": A Baby Bell consortium's contract (awarded earlier this week) will be spread out for a number of years -- to the end of the century, in fact. A certain news service may have incorrectly extrapolated the cost per line arranged in the contract, too. At $300 per line, the wire service is saying that French manufacturer ALCATEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> will supply complex digital modems at just above the cost of last year's 28.8 baud, high-volume analog modems, plus the central office equipment, plus connectors and incidentals. People in the industry don't believe that that $300 per line is possible at the moment. In addition, to respond to other skeptical columnists, French conglomerates that lose money perennially do not always squash small companies; otherwise, where did US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> and ASCEND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %> come from?
QUICK CUTS: Automotive safety and aerospace product specialist OEA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OEA)") else Response.Write("(NYSE: OEA)") end if %> slumped $3 3/4 to $38 1/4 after missing estimates by eight cents on record sales, operating profits and net income... Leading auto collision shop supply distributor THOMPSON PBE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: THOM)") else Response.Write("(NASDAQ: THOM)") end if %> was scraped for $1 7/8, trading down from yesterday's close of $7 5/8. The company pointed to softness in certain markets and the cost of integrating acquisitions in its earnings warning... Measuring and controlling device-maker SBS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SBSE)") else Response.Write("(NASDAQ: SBSE)") end if %> moved down $3 1/2 to $19 3/4 on the company's announcement that it will acquire private networking company Bit 3 Computer and will fund the deal with a stock offering that will expand the share count by approximately 50%
FOOL ON THE HILL
An Investment Opinion by MF Templar
Marvel-ous Debt
MARVEL ENTERTAINMENT GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRV)") else Response.Write("(NYSE: MRV)") end if %> plunged $2 1/4 to $5 5/8 today after the company announced that it will lose money for the fourth quarter in a row when it reports earnings this month. The comic book and baseball card franchise expects to see a loss of seven to twelve cents per share in the third quarter because of "weakness" in its comic book and trading card markets. This result is well below the consensus estimates of $0.08 EPS that First Call was on the look-out for and it continues the string of disappointments that have pushed the stock down from $15 3/4 twelve months ago. Marvel managed to earn nineteen cents last year and has only seen its business deteriorate in the last twelve months.
And Ronald Perelman was having such a good year. Perelman, who owns 81% of Marvel through his investment company, just reeled in a huge pile of cash in March when he brought REVLON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: REV)") else Response.Write("(NYSE: REV)") end if %> public again. Revlon currently trades at a 52-week high of $32, well above its offering price. Unfortunately, Marvel is not the only Perelman enterprise to short circuit recently. Shares of camping supply company COLEMAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLN)") else Response.Write("(NYSE: CLN)") end if %> have seen quite a bit of weakness lately after the company warned of a weaker-than-expected third quarter and takeover rumors faded. Perelman's investments tend to be heavily-leveraged brand properties that dominate their segment of the market -- all descriptions that suit Marvel, Revlon and Coleman quite well. Has this approach been a good one? Shareholders in Marvel might disagree.
Marvel Entertainment is not a company that is short on market share, for sure. Marvel Comics shares the comic book market with TIME-WARNER'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWI)") else Response.Write("(NYSE: TWI)") end if %> DC Comics, although the last few years have seen creator-owned comic companies like Image break onto the scene and take market share. Most industry estimates give Marvel about 50% to 55% of the total revenues in the product category, a share it has maintained for decades. Combined with this strong market share, Marvel owns the rights to all the characters its writers and artists create -- a pretty powerful weapon in this era of licensing. Everything from lunch boxes to T-shirts is adorned with Marvel Comics products. The company is in active talks with PLANET HOLLYWOOD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHII)") else Response.Write("(NASDAQ: PHII)") end if %> to create a chain of themed Marvel Superheroes restaurants.
The company also has a dominant presence in the trading card market through its subsidiary, Fleer. With a heavy concentration in baseball and hockey cards backing up its growing entertainment card business, everything looked ship-shape in late 1994 until the baseball strike caused Marvel to take huge returns on its card inventory, leading the company to offset the loss by taking a substantial one-time charge. A weak return of baseball in 1995, combined with weakness in the comic book market brought on by stiff competition, continued the company's troubles -- in spite of the success it was having with various television and toy licensing efforts through Perelman-owned TOY BIZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TBZA)") else Response.Write("(NASDAQ: TBZA)") end if %> and NEW WORLD COMMUNICATIONS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NWCG)") else Response.Write("(NASDAQ: NWCG)") end if %>, respectively.
Perelman, master of the leveraged buy-out, uses a lot of debt to finance cash-flow-rich companies and then takes all that money generated from operations to pay off the debt and leave a little for earnings. $22.3 million in cash, $623 million in debt and now only $572.7 million in equity leaves the company with more than six dollars in debt per share. Servicing that massive debt was not a problem when comics and cards were both firing on all cylinders. However, now that both industries have seen a downturn, all of that debt is absolutely crushing shareholder value in spite of the fact that the enterprise value of this firm is still more than a billion bucks. The cost of this debt combined with the previously-described business downturn caused the company to lose $0.46 EPS in 1995 and will see it post another $0.40 EPS loss this year.
If Marvel was not saddled with all of that debt, the company would be in a much better financial position. With evergreen properties like the X-Men, Spiderman, the Incredible Hulk and the Fantastic Four, it is only a matter of time before these names join Batman, the Mask and Superman on the movie marquee in big budget Hollywood flicks, re-igniting the licensing business. James Cameron, the director of the Terminator, is currently working on a Spiderman movie scheduled for release sometime next year. Like Disney, Marvel has strong brands that are well-known to millions of people across the world. Perelman's attempt to build a keiretsu to control all aspects of the licensing from toy manufacturing to broadcast television have met with limited success as he has gotten into capital-intensive businesses while the core brand company was being drained of life by its debt. Could Marvel have done better if it had not made the expensive acquisition of Hero's World to dominate distribution of comics as well the writing? Has Marvel crushed creativity in the industry by trying to control and own everything? These are legitimate questions that have an impact on the value of the shares. Is there value left here in spite of the debt load? Possibly. But the company's move toward more licensing might actually be disastrous if it loses its core comic book base.
FOOLISH FEATURES
Today's Lunchtime News looks at yesterday's book-to-bill announcement and how it relates to the semiconductor industry.
CONFERENCE CALLS
None
Dale Wettlaufer (MF Raleigh),
a Fool
A Fool Named Horse
Selena Maranjian (MF Selena),
a Fool
Heroes & Goats & Editing