HEROES
Specialty retailer WILLIAMS SONOMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSGC)") else Response.Write("(NASDAQ: WSGC)") end if %> resumed its growth-stock look today, climbing $2 3/4 to $32 3/4 after turning in earnings that were at least not zero. The company's earnings for the last couple of quarters have not reflected the early years of its history, when the retail concept was excellent and the company's CEO used his experience in the computer business to build competitive advantages on superior management information systems (MIS) capabilities. Now that MIS and data mining, on various scales, are de rigueur in almost any industry, the company has to perform on other fronts, from real-estate to brand management. Far from being a faddish disappointment like CML GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CML)") else Response.Write("(NYSE: CML)") end if %>, Williams Sonoma needs to focus on details to burnish its brand names like its core retail/catalog and build its somewhat confused Pottery Barn concept. It doesn't appear, though, that it will disappoint as badly as CML, whose Nordic Track and Smith & Hawken units continue to flail.
LESLIE'S POOLMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LESL)") else Response.Write("(NASDAQ: LESL)") end if %> jumped $2 1/4 to $13 3/4 after a limited partnership made a $14.50 per-share offer for the leading seller of swimming pool supplies and products. The wonderful thing about the deal? The chairman and his number-two guy are the partners of the LP, which carries the appellation "II," though we don't know what else the officers have partnered on before. Leslie's has received other buyout offers, but this is the best one of the three currently put on the table. Judging by the six-months ending June 29, in which EPS rose 79% on an increase in sales of only 24%, the chairman and "number two" obviously think there's more growth to come and that maybe the demographic trend of Sunbelt moves isn't over either.
QUICK TAKES: Year 2000 software problem solver VIASOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIAS)") else Response.Write("(NASDAQ: VIAS)") end if %> rebounded mid-day to finish up $3 1/8 at $48 3/4 after detailing its acquisition of German software company Rottger & Osterberg Software for $29 million in cash and stock, plus assumption of $4 million in debt...TRANSWITCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TXCC)") else Response.Write("(NASDAQ: TXCC)") end if %> jumped $1 3/8 to $6 3/4 after announcing a semiconductor design win for the Max TNT products of ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %>... Telecommunications products/voice recognition company MOSCOM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSCM)") else Response.Write("(NASDAQ: MSCM)") end if %> was juiced upward $1 5/8 to $8 5/8 as investors must have been able to see past the company's operating losses, net loss, and slow sales growth reported last night... SABA PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: SAB)") else Response.Write("(AMEX: SAB)") end if %> surged another $4 to $35 3/4 today as investors continue to price in the additional reserves and production brought in through a recent acquisition... Nutritional supplement company RELIV INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RELV)") else Response.Write("(NASDAQ: RELV)") end if %> strengthened $1 1/8 to $7 1/2 after the company announced its best sales month in over three years... SPECTRAL DIAGNOSTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DIAGF)") else Response.Write("(NASDAQ: DIAGF)") end if %> was bumped up $27/32 to $6 27/32 after receiving approval for one of its cardiac drugs... Java software company TRITEAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TEAL)") else Response.Write("(NASDAQ: TEAL)") end if %> moved up $2 3/4 to $17 3/4 after filling in part of its sales pipeline...
GOATS
ANCHOR GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SLOT)") else Response.Write("(NASDAQ: SLOT)") end if %> dropped $8 7/8 to $30 1/8 after the company announced that it will scale back on plans to add capacity across the street from its Colorado Central Station Casino. Since the company's earnings are not only based on its take at its casinos but in supplying the goods, such as tokens and gaming machinery, the company's lead underwriter BT Securities lowered its rating on the company. While the analyst said this development leaves a "high level of uncertainty" in the growth story, he still believes that the company will grow earnings-per-share 29% in 1998. True, the company's operations would be grown significantly by the addition of only one casino, but there's little denying that the CEO and the rest of the company has found a way to grow earnings on only two casinos in addition to its slot machine routes. Even if the company can't add another casino, management still has a bunch of cash for the market cap and has found ways to make their earnings grow on a steady basis, which is a hallmark of good management.
Growth stock legend HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HD)") else Response.Write("(NASDAQ: HD)") end if %> fell $3 3/8 to $53 3/8 even though the company came in with Q3 earnings of $0.46 per share, right in-line with estimates. Home Depot registered sales of almost $5 billion in the third quarter and same-store-sales growth of 7%, which is amazing considering all the rainy-day reasons cited by companies like SUNGLASS HUT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAYS)") else Response.Write("(NASDAQ: RAYS)") end if %> in explaining poor performances in the like period. When the number come in so strong and the stock is down, there's probably a forward-looking reason for that. Thankfully, companies are being very gracious and reasonable in letting their owners and potential owners tread where only analysts had before: the quarterly conference call. While we could probably root out some reasons for the little slide today, we'll let Fools find out for themselves by listening to the replay or by reading the call synopsis, done by the fabulous MF Debit, found in Earnings Central.
QUICK CUTS: Leading HMO company HEALTHSOURCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HS)") else Response.Write("(NYSE: HS)") end if %> lost $1 3/4 to finish at $13 after reporting earnings-per-share (net charges) of $0.08, below First Call estimates of $0.11 per share, even though the company was able to control its medical loss ratio, the largest of its expenses...CONVERSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVE)") else Response.Write("(NYSE: CVE)") end if %> moved down $1 to $8 5/8 after posting another net loss as interest expense swamped operating income and sales hardly grew in the critical back-to-school quarter... Pre-fab homes maker OAKWOOD HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OH)") else Response.Write("(NYSE: OH)") end if %> continues to get crushed, dropping another $1 1/2 to $21 1/2, as investors worry about overcapacity even while suppliers are tooling up, which may signal a continuation of profit margins for the makers...ELECTROSCOPE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESCP)") else Response.Write("(NASDAQ: ESCP)") end if %> was whacked for a $2 loss to close at $4 1/2 after the maker of medical electronics shielding announced that second quarter sales would fall 30% below analysts estimates. The company didn't exactly dance a jig over earnings, either...Apparently, $60 T-shirts aren't making it these days, as MARISA CHRISTINA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRSA)") else Response.Write("(NASDAQ: MRSA)") end if %> was blasted for a $1 1/2 loss to close at $7 3/8 as underwriter Dillion Read cut its ratings and estimates after the fashion company reported rather unfashionable earnings...INFORMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IFMX)") else Response.Write("(NASDAQ: IFMX)") end if %> lost $3 to $17 5/8 as the company released sweeping plans for its web development tools -- brokerage analysts took a look and cut estimates, counting out fewer beans on the earnings side than they had formerly estimated... Staffing firm EMPLOYEE SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESOL)") else Response.Write("(NASDAQ: ESOL)") end if %> lost $1 5/8 to $21 3/8 even though the company yesterday posted an estimate-beating 160% increase in quarterly EPS and announced the purchase of a staffing firm for 1/5 of that firm's revenues....
FOOL ON THE HILL
An Investment Opinion by MF
Templar
Michael Jordan Scoops The Journal
A published report in the Wall Street Journal this morning re-invigorated speculation that WESTINGHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WX)") else Response.Write("(NYSE: WX)") end if %> would break itself in two, driving the share price up $3/4 to $20 3/4 on more than three times normal volume. The Journal stated that when the company's board of directors met today they would approve a spin-off of the company's industrial operations into a new company with a separately traded stock. Although the story has been receiving quite a bit of press attention today, it actually is not quite the scoop that the media is painting it as.
Westinghouse has been considering the economics of a spin-off since its acquisition of CBS in August of 1995. According to spokesman Kevin Ramundo during the second quarter conference call, the company was weighing a "variety of options" in order to create separate stocks for its industrial and broadcasting units, including strategic asset divestitures, an outright sale of the industrial operations, or a spin-off into a separately traded company. Pundits have speculated that a spin-off was going to be the way to go since April, when Westinghouse Chairman and Chief Executive Officer (CEO) Michael Jordan told the National Association of Broadcasters that "separate companies could maximize shareholder value." Jordan himself proposed a spin-off to the board on June 10th, clearly showing that a potential spin-off has been on the minds of management for months.
Westinghouse announced the acquisition of Infinity Broadcasting on June 20th, adding substantially to the radio assets of CBS/Group W by creating a unit that had 83 stations in 16 markets. "I have been saying for a while that radio was the real hidden jewel [of the CBS/Westinghouse combination]," Westinghouse Chairman and CEO Michael Jordan announced at the time in a press conference. With CBS and Infinity added to Westinghouse's Group W broadcasting operations, the company had built a media portfolio on the scale of what GENERAL ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> or DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> have constructed. The question has always been whether the performance of Westinghouse's moribund industrial operations would allow the broadcasting properties to receive the full and fair valuation they deserve.
Westinghouse is no stranger to industrial spin-offs. WESTINGHOUSE AIR BRAKE COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAB)") else Response.Write("(NYSE: WAB)") end if %> came public in 1993, shortly after Mr. Jordan took the company reins, in an effort by the 110-year old industrial concern to put the business out to be separately valued by the investing public. A spin-off of the industrial operations means that the company will have to work through the economics of the deal, calculating which part gets certain liabilities and which part gets certain assets. The Journal speculated that the broadcasting unit would inherit the bulk of the company's $5 billion in debt, with the industrial operations taking $1.5 billion in pension liabilities and an unspecified amount in environmental liabilities.
The Westinghouse/CBS Group did $910 million in revenues and the Industries and Technology Group booked $1,130 million in sales in the third quarter reported on November 11th. INFINITY BROADCASTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: INF)") else Response.Write("(NYSE: INF)") end if %> reported $201 million in sales in the third quarter, putting the pro-forma combined revenues at $1,111 million, meaning that both of the business units are of roughly equal size. Extrapolating potential valuations from these numbers, you can take the "run-rate", a measure of potential annual revenues derived by multiplying the last quarter by four. In non-seasonal businesses, this can give you a sense of the potential revenues that could be generated over the next year, although it comes with the caveat that it is an imperfect tool at best.
The Westinghouse/CBS Group's run-rate is $4,444 million while the Industries and Technology Group's run rate is $4,520 million. By way of comparison, Disney has about $20 billion in revenues with a market capitalization of $48,159 million and long-term debt of $11,700 million for a total price of $59,859 million, valued at about three times sales right now. General Electric has $75,937 million in trailing sales, $168,226 million in equity and $49,800 million in debt for a value of 2.9 times sales. Westinghouse, with $8,416 million in equity, $5,000 million in debt and potential total revenues of $9,000 million over the next four quarters clearly trades at a discount, although it is quite a bit less profitable than either of the aforementioned enterprises.
The questions for investors to analyze is whether or not the broadcasting business could get a premium valuation if it were broken off from the overall company. With $4,444 million in revenues, a 2.0 to 3.0 multiple of sales would put the total equity and debt at $9,000 million to $13,500 million. Essentially, if the broadcasting operations could achieve a Disney or GE valuation, they would be worth the entire ticket price of Westinghouse as it stands. The only problem with this is that the Industries and Technology Group might be worth 0.25 to 0.50 times sales, despite the fact that it will not have significant long-term debt. The Journal's speculation that the price of the Westinghouse industrial assets in a spin-off could warrent less than $5 a share could quite possibly be right on. Another potential complication to recognizing immediate value to all of this is that this spin-off could kick Westinghouse off of the Dow Jones index. As a pure broadcasting play, Westinghouse would not really fit quite as well anymore given the presence of Disney and General Electric on the hallowed index. Mass selling in various Dow strategy-related funds could create a short-term muddying that would make it advantageous to buy after any spin-off, and not before.
FOOLISH FEATURES
Today's Lunchtime News followed up on yesterday's book-to-bill announcement, including a discussion of what makes that ratio behave like it does.
Earnings Central, as always, has lots of useful conference call coverage. It's a great place to look for new stock ideas. Some of the latest calls added are JCPenney, Williams-Sonoma, Whole Foods Market and Innovex.
October semiconductor book-to-bill figures are out, and the Fool has coverage, including a FoolWire, Templar's Take, and a really snazzy graph of bookings and billings for the past four years..
CONFERENCE CALLS
11/12/96
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
9:00 a.m. EST
(402) 220-6028 -- replay, available after noon
11/12/96, 11/13/96
WINSTAR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WCII)") else Response.Write("(NASDAQ: WCII)") end if %>
Tuesday 5:30-11:30 EST and Wed. 6:30am to 12:30pm EST
(800) 633-8284, code 2026447#
11/12/96
ACCEPTANCE INSURANCE COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIF)") else Response.Write("(NYSE: AIF)") end if %>
(800) 633-8284 (code: 2086233#) -- replay
11/12/96
DOLLAR GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DG)") else Response.Write("(NYSE: DG)") end if %>
(800) 633-8284 (code: 2105845) -- replay (avail. after noon EST)
11/12/96
AMERICAN ECO CORP. (ECGOF)
(call to discuss company's vision and strategy)
1-800-475-6701 (ext. 321309) -- replay (avail after 6:10PM EST)
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Randy Befumo (MF Templar),
a Fool
Fool On the Hill
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Fool
Heroes & Goats
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Editing
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