The Evening News - Tuesday, November 19, 1996

HEROES

INNOVEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVX)") else Response.Write("(NASDAQ: INVX)") end if %> added $2 3/4 to $32 1/4 today as Jeffery Vinik's hedge fund filed disclosure of 8.9% ownership of the Minnesota company. Set out on the Silicon Tundra, the company has picked up more analyst coverage of late due to its steady growth in earnings, its acquisition of Litchfield Components, and its new WAT (wire alignment tab) products. Close observers have always known that Fidelity Investments has kept watch over disk drive component companies such as Innovex and HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HTCH)") else Response.Write("(NASDAQ: HTCH)") end if %>. As leading indicators of the disk-drive industry, they can serve as useful guides to where that industry is going -- especially since Innovex and Hutchinson each has a market share of 70% in their chosen markets. However, Innovex has grown more steadily and hit the market quicker with its next generation stuff -- the WAT -- and has made a move to protect itself against Hutchinson's TSA product. Apparently, it's all good enough for Vinik and investors who have been well-rewarded in the past 120 days.

FLEXTRONICS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FLEXF)") else Response.Write("(NASDAQ: FLEXF)") end if %> moved up $5 1/4 to $33 after the electronics contract manufacturer announced that it is buying two Swedish production facilities from cellular telephony equipment company LM ERICSSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ERICY)") else Response.Write("(NASDAQ: ERICY)") end if %>. Adding to capacity was just the move the company needed to turn it back toward its yearly highs, from which the shares had beat a hasty retreat in May. This expansion could add up to 70% capacity, which means a large fixed cost structure, but which also means that the company may gain some more leverage with its worldwide manufacturing base. Since contract manufacturing is, for the most part, low-margin and extremely competitive, the name of the game is to grow operating earnings in absolute dollars and to win the right customer relationships. Since Ericsson will probably be buying parts from these facilities, and since cellular telephony has shown signs of a rebound lately, investors applauded Flextronics' move today.

HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HWP)") else Response.Write("(NASDAQ: HWP)") end if %> rose $2 3/4 to $52 1/2 after reporting flattish fourth quarter earnings. The company encouraged investors by stating that October orders were strong. Shares of IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>, DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %>, and COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> all had an excellent day, possibly because H-P made comments that laid the blame for slowing sales at the feet of non-PC business units. For the full scoop, scroll down to the "Conference Call" section and pick up the number to dial-in.

QUICK TAKES: Kmart's in play! Kmart's in play! Absurd? Maybe, but that was the shout heard on the floor today as the discount retailer KMART <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> rose $1 5/8 to $11 1/4. Rumors circulated that Henry Kravis and KKR were considering taking over the company... In real merger & acquisition news, industrial equipment manufacturer SUDBURY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUDS)") else Response.Write("(NASDAQ: SUDS)") end if %> moved up $2 3/8 to $12 3/8 after agreeing to a $12.50 per share buyout offer from competitor INTERMET CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INMT)") else Response.Write("(NASDAQ: INMT)") end if %>... BOX ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BOXXB)") else Response.Write("(NASDAQ: BOXXB)") end if %> exploded upward $1 1/4 to $9 1/4 on a $11.40 per share offer from Toronto company Phoenix Canada Oil. The "A" shares didn't move up as much though -- Phoenix has a $12.00 per share offer on the table for that class of Box's capital stock... Industrial services company PHILIP ENVIRONMENTAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEV)") else Response.Write("(NYSE: PEV)") end if %> moved up $1 1/4 to $11 5/8 as brokerage Deutsche Morgan initiated coverage of the firm with a "strong buy" recommendation... Footwear concern GENESCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCO)") else Response.Write("(NYSE: GCO)") end if %> stepped up $1 1/4 to $9 5/8 after reporting a near-doubling in earnings per share for the third quarter due to strength in same-store-sales on the back of its Nautica footwear line... IMAGYN MEDICAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IGYN)") else Response.Write("(NASDAQ: IGYN)") end if %> jumped $1 3/4 to $8 7/8 after learning from the FDA that it can make certain claims about its Hysteroscope...

Women's clothier PAUL HARRIS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PAUH)") else Response.Write("(NASDAQ: PAUH)") end if %> moved up $2 15/16 to $16 3/16 after reporting a 23% jump in third quarter sales (on 10% fewer stores) and $0.17 earnings per share (EPS), compared with First Call's consensus estimate of $0.11.... OSICOM TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FIBR)") else Response.Write("(NASDAQ: FIBR)") end if %> marched onward and upward $1 3/4 to $10 as the networking equipment company reported Q3 EPS of $0.14, compared with $0.02 last year... VMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VMRK)") else Response.Write("(NASDAQ: VMRK)") end if %> surged $1 3/8 to close at $9 5/8 as the company filled in investors on its new data warehousing application. Scroll down for this conference call number... Mobile communications products company THE ALLEN GROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALN)") else Response.Write("(NYSE: ALN)") end if %> added $1 1/2 to $21 3/4 after JC Bradford upped the shares to "buy" from "hold"... Competitive Local Exchange and interLATA carrier ACC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ACCC)") else Response.Write("(NASDAQ: ACCC)") end if %> jumped $2 3/8 to $34 after Wheat First Butcher Singer re-instated coverage of the company with a "buy" rating following the brokerage's two-month quiet period related to its underwriting of ACC's September stock offering...BANKAMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> climbed $2 to $98 as investors believe that the company's offering stock options to its workforce will do good things for employee morale, and hence, efficiency ratio and earnings.

GOATS

FRONTIER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %> lost $3 1/8 to $27 3/4 after announcing that it will take a $65 million charge against Q4 and FY1996 earnings as the result of finalizing a billing dispute with another phone company, writing down a software development cost, and switching the form of its pension plan. Taking away almost half a billion dollars in Frontier's equity value today, the market seems to be saying that there is an operating problem at the company. In actuality, the nation's fifth-largest non-Baby Bell telecom is shaping up operations. Though the company doesn't sport the same assets as the UUNet division of MFS TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MFST)") else Response.Write("(NASDAQ: MFST)") end if %>, it also doesn't hemorrhage cash like that company. With its positive free cash-flow and above-market dividend yield, Frontier's move to switch to 401(k) non-defined benefits from a defined-benefit pension plan probably increases the profit outlook and potential for total return in the coming year, notwithstanding the short-term uncertainty.

Though the firm wouldn't say why, Montgomery Securities cut to "hold" from "buy" the shares of COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> today. Dropping $4 1/8 to $44 3/4, CPU's shares dropped further from their high of $61 3/4 established in late October and are back at their May-June level. The debate in the brokerage world over PC pricing, business models, and channel inventories is probably second only to the fundamental differences various houses have over the direction of interest rates. Some analysts fret over the various metrics while others focus on the value-added services that CompUSA offers. As well as the company has done, and as far as it has come from the days in 1994 when the company couldn't even get a handle on its inventories, one does have to question the 33 P/E ratio (as of last night) when the bulk of the company's business is distribution. There's little reason to expect the company's operating margin and sales growth to be twice as good as that of DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> or GATEWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GATE)") else Response.Write("(NASDAQ: GATE)") end if %>, whose P/Es were both 17x last night. In fact, CompUSA's operating margin is one-quarter that of Dell (as of last quarter). Many Foolish investors would have thought of downgrading CompUSA, too.

QUICK CUTS: MERIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MERX)") else Response.Write("(NASDAQ: MERX)") end if %> lost $7/8 to $14 1/8, saying that it sees Q2 sales below Q1 and break-even results for the coming quarter... Auto lender OLYMPIC FINANCIAL LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> fell $1 1/8 to $13 3/4 after Piper Jaffray cut its rating on the stock, saying the company might have to increase reserves against losses on disposal of repossessed cars...SHUFFLE MASTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SHFL)") else Response.Write("(NASDAQ: SHFL)") end if %>, a maker of equipment for casinos and other gaming establishments, dropped 1 3/4 to 10 1/8 after indicating that Q4 earnings will come in at $0.07-$0.09 per share, while the First Call mean estimate stands at $0.13...The shares of RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAIN)") else Response.Write("(NASDAQ: RAIN)") end if %> slid $2 1/4 to $28 1/4 after the company announced that its President and Chief Operating Officer will take a 30-day leave of absence. Morgan Stanley also downgraded the stock to "neutral" this morning... RESEARCH ENGINEERS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RENG)") else Response.Write("(NASDAQ: RENG)") end if %> lost $2 3/16 to finish at $3 5/16 after the engineering software company said yearly earnings will come in at about half of what analysts have been expecting, citing a longer sell cycle for its products as the reason... TRUSTED INFO SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TISX)") else Response.Write("(NASDAQ: TISX)") end if %> came down off yesterday's highs, declining $2 to $13 3/8, a day after the company announced a deal with Hewlett-Packard. Investors might want to re-read MF Templar's article on the dangers of COMDEX-induced trading... Software development/test company PURE ATRIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PASW)") else Response.Write("(NASDAQ: PASW)") end if %> lost $2 5/8 to $23 3/8 as investors analyze the company's purchase of Integrity QA Software, a private Windows/Web software test company... NUCO2 INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NUCO)") else Response.Write("(NASDAQ: NUCO)") end if %> lost $2 to $12 as the company slowly leaks away its market cap. We hope brokerage Raymond James didn't change its mind again today... IVAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IVX)") else Response.Write("(AMEX: IVX)") end if %> lost $1 1/8 to $11 after the company's 10-Q for the third quarter was filed with the SEC. The generic drug-maker is set to merge with distributor BERGEN BRUNSWIG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %>.

FOOL ON THE HILL
An Investment Opinion by MF Templar

TCI -- More than Just Coax

Shares of TELE-COMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCOMA)") else Response.Write("(NASDAQ: TCOMA)") end if %>, better known to consumers as TCI, have rebounded sharply from the five-year low set back on October 24th, closing today at $13 1/8. The stock has been hard hit in recent weeks as doubts have accumulated over whether or not satellite premium channels would take the bloom off of cable's rose. Showing slowing cash-flow growth due to the combination of satellite attrition and investment in new ventures like @Home, many have begun to wonder whether or not chairman John Malone has lost his vaunted touch. Certainly, the complicated cross-ownership between Tele-Communications Inc., TELE-COMMUNICATIONS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TINTA)") else Response.Write("(NASDAQ: TINTA)") end if %>, TCI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCII)") else Response.Write("(NASDAQ: TCII)") end if %>, LIBERTY MEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LBTYA)") else Response.Write("(NASDAQ: LBTYA)") end if %>, 30 percent of Sprint Spectrum and TCI Communications makes things really confusing for most investors -- soon to be made even more complicated when TCI spins off its satellite unit on December 4th.

With 12.5 million cable subscribers as of December 1995, TCI is the largest provider of cable television services in the U.S., with TIME WARNER'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %> 12.1 million subscribers allowing it to come in a close second. COMCAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMCSA)") else Response.Write("(NASDAQ: CMCSA)") end if %> and CABLEVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CVC)") else Response.Write("(AMEX: CVC)") end if %> are the next closest competition, with 3.4 million and 2.7 million subscribers respectively. The rate of subscriber growth has slowed in recent months for all cable providers, due largely to the advent of GM-HUGHES' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %> wildly popular DirectTV, causing many of the cable companies to lose substantial market capitalization. Understanding TCI and many of the other cable companies requires a little more effort than just focusing on the basic cable business. Although Wall Street has been unwilling to cut TCI any slack over recent months, the diversified cable company that it represents might well be the true beneficiary of the information age.

Ferreting out TCI's strategy and value is a difficult task given the amount of different projects the company is involved in. A short summation would literally take up four or five columns, but some of the highlights include online services, wireless telephony and satellite broadcasting. TCI recently scrubbed its participation in MICROSOFT'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> much ballyhooed Microsoft Network (MSN), getting back the $500 million in stock it had pledged as part of the partnership. Instead, its online access will be via cable modems through bread-and-butter Internet access and its joint venture @Home. The company's @Home partnership with Silicon Valley venture capital firm Kleiner Perkins has been slow to start, although it shows promise should high-speed cable access to online services become the dominant access form. The only problem with cable modems is that someone has to install the darn thing in your computer, something you are probably not gonna want the cable guy to do.

As for the wireless side of the business, there seems to be much stronger near-term prospects. TCI has a large stake in the Sprint Spectrum Personal Communication Services (PCS) venture, a Sprint-led consortium that has already spent a cool $2.1 billion for the wireless system build-out to date. The Code Division Multiple Access (CDMA) based service will cost about $10 billion to completely roll out, of which TCI will probably foot a $3 billion bill. Although many have been skeptical about the ultimate value of this wireless service, as a subscriber to Sprint Spectrum I can attest that the features are much more comprehensive than cellular despite the fact that your use as a phone (but not a beeper) is limited primarily to urban areas. With the features available, PCS should definitely give cellular a run for its money, perhaps auguring a great slaughter of the cellular providers just as the success of DirectTV and other satellite cable companies has damaged the cable providers.

Frankly, a lot of the skepticism over TCI is that they did not do too well in the recent telecommunications reform. The legislation did not play into the hands of cable operators, as they now face competition from regional Bells, long-distance operators and satellite services to provide all kinds of goods and services without getting all that much in return. Although JONES INTERCABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JOINA)") else Response.Write("(NASDAQ: JOINA)") end if %> has been offering a local phone and cable access package to apartments, this does not seem to be a bonanza. TCI is also debt-ridden, with $13.2 billion in long-term debt and $1.675 million in preferred shares outstanding.

In all honesty, it is very difficult to calculate the market value of TCI given the multiple classes of shares, preferred shares, separately trading wholly-owned subsidiaries and the joint ventures. It seems that the company is worth $8.865 billion in equity counting up all of the parts plus the $14.875 billion in debt, leaving the company with an enterprise value net negligible cash of $23.74 billion. Even putting a multiple to sales on TCI is impossible because so much of the company's revenues are not consolidated under the core TCI entity, although given the data available it looks to be about 3.3 times sales. In the end, figuring out how much of each part of TCI is worth and determining the value of the company by figuring out the sum of the parts seems like the more worthwhile direction, although a much more arduous task.

FOOLISH FEATURES

InnoVinik? The Lunchtime News looks at former Fidelity Magellan manager Jeff Vinik's recent accumulation of Innovex for his new firm. Innovex has been on a tear lately; just last week they announced earnings well above consensus estimates.

CONFERENCE CALLS

11/18/96
HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(303) 446-5399 (code: 2004539) -- replay (after 8:30 p.m. EST through 8p.m. EST on 11/25)

11/19/96
DAYTON HUDSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
(800) 633-8284 (reservation # 2053944) -- replay (avail. from 12:30-5:00 p.m. EST only)

11/19/96
ROSS STORES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROST)") else Response.Write("(NASDAQ: ROST)") end if %>
(402) 222-9948 -- replay (avail. after 5PM EST 11/19 thru 8PM EST 11/26)

11/19/96
ANNTAYLOR STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %>
(402) 351-9977 -- replay

11/19/96
FRONTIER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %>
(800) 633-8284 (reservation # 2189563) -- replay

11/20/96
BROOKS AUTOMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRKS)") else Response.Write("(NYSE: BRKS)") end if %>
(402) 220-5199 -- replay

11/19/96
VMARK SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VMRK)") else Response.Write("(NASDAQ: VMRK)") end if %>
Detailing new software
(402) 280-9014

ANOTHER FOOLISH THING

Painless Stock Valuations

Learn to value stocks painlessly! In the Industry Decathlon primer, MF Bogey takes readers by the hand and walks them through five stock valuation methods and ten financial ratios. While demystifying the Balance Sheet, Statement of Cash Flows, and Income Statement, Bogey demonstrates how to compare a bunch of companies in your industry of choice and find the most promising one. This is very useful stuff, folks! Check it out in FoolMart.

Randy Befumo (MF Templar), a Fool
Fool On the Hill

Dale Wettlaufer (MF Raleigh), Lynyrd Skynyrd Roadie as Child
Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

THE DAILY NEWS CAN BE DELIVERED DIRECTLY TO ANY INTERNET E-MAIL BOX.