The Evening News - Wednesday, January 22, 1997

HEROES

RIGHTCHOICE MANAGED CARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIT)") else Response.Write("(NYSE: RIT)") end if %> gained $1 5/8 to $14 1/2 today after the company announced that it will seek to reach either a strategic agreement or combination with BJC Health System, another managed care company based in St. Louis. RightChoice is the commercial affiliate of Blue Cross/Blue Shield of Missouri, which has been under scrutiny because it's a non-profit institution with a for-profit commercial managed care arm. A circuit court judge in Missouri recently ruled that Blue Cross/Blue Shield of Missouri owes a ''toll charge'' of between $200 million and $500 million by virtue of its de-facto for-profit status. If the court ruling holds up, it will probably make sense for the publicly-traded company to get away from the non-profit group in order to protect both organizations.

Digital broker E*TRADE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> jumped $3 to $19 3/8 after reporting first quarter earnings per share (EPS) of $0.07 on a 197% increase in revenues. The company grew active accounts by 187% since Q1 1996 and 25% sequentially. The company has recently announced a number of software initiatives, including deals with PointCast and its new E*Watch service to debut next month. HAMBRECHT & QUIST GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMQ)") else Response.Write("(NYSE: HMQ)") end if %> also gained $1 5/8 to $25 5/8 as it heads toward its first quarter earnings report. While the company reported impressive earnings and revenue growth in fiscal 1996, estimates for this quarter assume that the company will not be able to keep up the torrid pace it set last year in IPOs and investment banking. At the moment, E*Trade is priced at around 9 times book value, while H&Q is valued at 2.6 times book. On forward earnings, E*Trade is priced at 80 times 1997 estimates, while H&Q is priced at 11.4 times 1997 estimates.

NORAND CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRND)") else Response.Write("(Nasdaq: NRND)") end if %> surged $13 5/8 to $33 after agreeing to be acquired by WESTERN ATLAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAI)") else Response.Write("(NYSE: WAI)") end if %> for $33.50 per share. Norand makes pen-based data retrieval systems and other handheld communications systems for inventory control, shop floor automation, and sales force automation. Western Atlas is one of the global leaders in geoseismic data collection, which is a sector that has recently become a favorite of growth and momentum money managers. The company is also a force in factory automation, building flexible production lines for companies like BMW. With an expanded product line to add to its Intermec offerings, Western Atlas would like to move the automation division to a 10% operating profit to help perpetuate its 20% annual shareholder return since its spin-off from LITTON INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIT)") else Response.Write("(NYSE: LIT)") end if %> in 1994.

QUICK TAKES: Circuit board manufacturer ADFLEX SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFLX)") else Response.Write("(Nasdaq: AFLX)") end if %> gained $4 5/8 to $16 after surprising investors with a 78% increase in Q4 revenues and EPS of $0.05... HYBRIDON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HYBN)") else Response.Write("(Nasdaq: HYBN)") end if %> bursted $1 5/8 higher to $7 3/8 after the company announced its antisense compound was found to inhibit cancer growth in mice... Inkjet component maker TRIDENT INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRDT)") else Response.Write("(Nasdaq: TRDT)") end if %> gained $4 3/8 to $22 1/2 after Alex. Brown raised rating to "strong buy" following the company's Monday earnings report... MCAFEE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAF)") else Response.Write("(Nasdaq: MCAF)") end if %> gained $4 5/8 to $60 7/8 after the network management software company reported Q4 EPS of $0.29 on a 102% increase in quarterly revenues... CELERITEK INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLTK)") else Response.Write("(Nasdaq: CLTK)") end if %> popped up $2 to $12 1/4 after announcing an order for PCS base stations from ERICSSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %>... Semiconductor equipment company TEGAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGAL)") else Response.Write("(Nasdaq: TGAL)") end if %> gained $1 1/8 to $7 1/2 after giving indications the business is turning around... VERITAS SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTS)") else Response.Write("(Nasdaq: VRTS)") end if %> jumped $6 3/4 to $51, and merger partner OPENVISION TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OPVN)") else Response.Write("(Nasdaq: OPVN)") end if %> climbed $2 3/8 to $17 1/4 after the two companies signed a licensing agreement with SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>... Announcing a technology licensing agreement and an acquisition today, MEDICAL ALLIANCE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAII)") else Response.Write("(Nasdaq: MAII)") end if %> rose $1 3/4 to $13... VERIFONE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VFI)") else Response.Write("(NYSE: VFI)") end if %> rose $4 3/4 to $39 on reporting Q4 EPS of $0.42, in-line with estimates... Building products company NORTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NTK)") else Response.Write("(NYSE: NTK)") end if %> added $2 1/4 to $22 1/4 after coming in with Q4 EPS of $0.72, up 78% from last year... LA QUINTA INNS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LQI)") else Response.Write("(NYSE: LQI)") end if %> motored $2 1/8 to $19 3/4 on earnings news... Sunglasses stocks were up across the board, including a $5 7/8 rise to $64 5/8 for LUXOTTICA GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUX)") else Response.Write("(NYSE: LUX)") end if %>, a $1 1/4 jump to $7 1/8 for SUNGLASS HUT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %>, and a $1 move to $10 7/8 for OAKLEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OO)") else Response.Write("(NYSE: OO)") end if %>.

GOATS

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> fell $2 1/2 to $43 1/2 in bringing the third quarter into port after traveling the stormy seas of disappointing the Street. Though the database application developer beat estimates and recorded pre-tax net income of 43%, analysts still came away from the conference call with a bad taste in their mouths. In its pre-announcement conference call in December, the company gave indications that it believes its problems in Europe are identifiable and that it will be able to handle those problems with the right sales and engineering support. On a nine-month run rate, the company is trading at 20 times earnings, just below its estimated 5-year growth rate and about half the more optimistic 5-year growth estimates of 40% yearly growth.

Birds of a feather herd together in the Goats column today, as IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> fell $10 to $158 after reporting earnings last night. Big Blue was hit by similar problems in Europe, where macroeconomic factors and a stronger dollar have made the going a little rough for the big cap hardware and software firms. SoundView analyst Gary Helmig said the company is being hurt in the workstation market, where competitors like HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> and SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> have scored big gains. IBM has been smashing the competition in the high-end and consumer laptop PC market, and in the desktop PC area, customer perceptions of higher quality have allowed it to price its models at premiums to competitive products. Outside of its extremely steady service business and the sort of default revenues the company wins by virtue of being IBM, today's anxieties are firmly rooted in growth concerns.

QUICK CUTS: French semiconductor company SGS-THOMSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STM)") else Response.Write("(NYSE: STM)") end if %> plunged $9 3/4 to $69 1/2 after issuing forward-looking statements for the coming year that didn't exactly comfort investors... STERIS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STRL)") else Response.Write("(Nasdaq: STRL)") end if %> was greased for a $8 3/4 loss to $29 1/4 after the cleaning and sterilization products company pre-announced poor Q3 results... Plant management software company FOURTH SHIFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FSFT)") else Response.Write("(Nasdaq: FSFT)") end if %> fell $1 to $4 1/2 after reporting disappointing fourth quarter revenue growth... AG ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AGAI)") else Response.Write("(Nasdaq: AGAI)") end if %> fell $1 1/8 to $5 7/8 after the rapid thermal processing equipment company reported a $0.22 per share loss for the first quarter... Database software company AUSPEX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASPX)") else Response.Write("(Nasdaq: ASPX)") end if %> fell $2 to $12 3/4 on reporting earnings and the departure of the company's founder from its Board... LYCOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> lost $2 1/8 to $16 5/8 after Alex. Brown & Sons cuts its rating to "buy" from "strong buy"... Mobile home maker COACHMEN INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COA)") else Response.Write("(NYSE: COA)") end if %> lost $2 3/8 to $20 3/8 after reporting an 8.1% increase in Q4 earnings... FREEPORT-MCMORAN RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRP)") else Response.Write("(NYSE: FRP)") end if %> lost $1 1/8 to $17 1/2 as analysts worried about the company's dividend... Filter maker PALL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLL)") else Response.Write("(NYSE: PLL)") end if %> fell $2 1/4 to $22 5/8 after pre-announcing flat Q2 sales growth and restructuring charges.

FOOL ON THE HILL
An Investment Opinion by MF Templar

A Sector Scorned

Temporary services companies have not been able to catch a break since the growth stock rally in May. Once one of the darlings of the momentum stock crowd, the sector has been in the dumper for quite some time. Many of the larger temporary help concerns have become mired in margin erosion as a result of increasing competition for large global contracts. Even here in the United States, a number of companies that had been able to grow through acquisitions have seen the rapid pace of expansion slow. Finally, after almost six solid months of temporary service company initial public offerings in late 1995 and early 1996, the capital market spigot has dried up as many companies have fallen from their previous highs.

ALTERNATIVE RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALRC)") else Response.Write("(Nasdaq: ALRC)") end if %> was once one of the anointed few, hitting its 52-week of $44 1/2 in May of 1996. Today the shares gave up $2 to fall to $15 3/8, hovering close to the $13 1/2 two-year low. Over the past six months, Alternative Resources has given up 42.8% while the S&P 500 has risen almost 10%. With 91.7% of the company's shares owned by institutional investors, it is no surprise that there have not been enough buyers to meet the momentum-oriented sellers eager to dump the stock. The firm's focus on technical-based temporary services had set it apart in the minds of many investors, a premium which is now exacerbating the downside punishment the shares are enduring.

At this point, stunned investors are probably wondering what the heck has gone wrong. Alternative reported earnings of $0.23 per share this morning, in line with consensus expectations. Earnings per share grew by only 9.5% when compared with last quarter, while revenues picked up a much more robust 17.9%, indicating that costs are climbing faster than anticipated. On January 7th, Alternative warned investors to expect earnings between $0.22 and $0.24 per share, blaming its margin erosion on lower profits from larger accounts -- the same deal for OLSTEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> and MANPOWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MA)") else Response.Write("(NYSE: MA)") end if %>. The spunky Lincolnshire, Illinois-based firm assured investors it would post positive earnings comparisons through 1997, and its is focusing on smaller clients in order to improve its financial viability.

Alternative Resources ended fiscal 1996 with trailing revenues of $196.7 million and trailing earnings of $0.83 per share. With 15.9 million shares outstanding, the company currently sports a market capitalization of $244.7 million. The balance sheet is strong, with $23.2 million in cash, $60.2 million in current assets, and $8.4 million in current liabilities. Although even here at its nadir the company trades at 18.5 times trailing earnings, the enterprise value-to-sales ratio is a more comely 1.12. The current estimates call for $1.01 EPS in fiscal 1997 and $1.21 in fiscal 1998, which would put the company at 15.1 times fiscal 1997 estimates and 12.7 times fiscal 1998 estimates.

With margins almost double those of larger competitors like Manpower and Olsten and a revenue base ten to twenty times smaller, Alternative clearly has the opportunity to go into the mid-size temporary services market to grow revenues. On a revenue basis, the company is actually even smaller than ACCUSTAFF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASI)") else Response.Write("(NYSE: ASI)") end if %>, the current leader in the small- to mid-range market. Alternative's new partnerships with both NATIONAL TECHTEAM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TEAM)") else Response.Write("(Nasdaq: TEAM)") end if %> and DEVRY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DV)") else Response.Write("(NYSE: DV)") end if %> are potentially the first step towards resumption of its historical growth. The trend towards outsourcing is only accelerating and given the tight market for technical positions, it seems evident that Alternative's market is not disappearing. The next stage for interested investors would be to crunch through Alternative's financials, compare them to the company's peer group, and make an evaluation of whether or not the company can execute the middle-market strategy it has adopted now that large client temporary work has become commoditized.

CONFERENCE CALLS

CHRYSLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %>
(402) 344-6802

US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>
(303) 267-1037 Code 164010

ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
replay available until 1/24
1-800-475-6701 (access code: 326346)

AVALON PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVN)") else Response.Write("(NYSE: AVN)") end if %>
(402) 220-6017 -- replay avail through 1/28

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
1-888-243-0816 (code: 8642) -- replay avail for 48 hrs. (note: # is toll free)

01/23/97 (Thursday)
NN BALL & ROLLER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NNBR)") else Response.Write("(Nasdaq: NNBR)") end if %>
1-800-696-1588 (passcode: 168654) -- replay

FOOLISH FEATURES

Companies keep on reporting earnings, and the Fool keeps covering the conference calls. Get the latest conference call summaries on US Robotics, IKOS Systems, Hutchinson Tech. and more in Earnings Central. Another feature to check out tonight is Rogue's look at managing uncertainty as it pertains to investing.

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, demonstrating 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. You might also be interested in his weekly Industry Decathlon report, delivered by e-mail or fax. In it, Bogey examines a different industry each week and runs its top players through his decathlon to discover which one company looks the most attractive.

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

Dale Wettlaufer (MF Raleigh), another Fool
Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

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