The Evening News - Tuesday, January 28, 1997

HEROES

BARNES & NOBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BKS)") else Response.Write("(Nasdaq: BKS)") end if %> climbed $1 3/4 to $30 3/4 after announcing an online retailing deal with AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. The agreement also helped boost the shares of America Online $1 to $35 1/4 as it accomplishes key objectives for both parties. America Online gains another brand name to add to the functionality of its retailing efforts, while Barnes & Noble gains a low-cost retailing space. Selling books isn't the highest-margin business going and has to deal with heavy seasonal fluctuation in cash flow. With a gateway to eight million online customers throughout the world with one "store location," the company can more than make up what it loses on the gross margin line by what it picks up with the absence of heavy operational expenses without all the bricks and mortar of a traditional retail outlet.

Casino and hotel operator HILTON HOTELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> climbed $2 1/2 to $27 3/4 as its offer to acquire and merge with ITT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> is meeting with positive reviews from investors. In a conference call this morning (see below for the number), the company said that it would get rid of ITT's education services, and it's likely that it will shed assets such as Madison Square Garden, MSG Network, and the N.Y. Rangers and Knicks. Hilton wouldn't do that until it can get the right price, though. The market capitalization to annualized gross cash flow (EBITDA, or earnings before interest, taxes, depreciation, and amortization) on ITT is 9 times right now, while Hilton's (putting the recently acquired Bally operations in the mix) is at 7.7 times -- meaning Hilton is not skimping on the offer even if the price is below ITT's 52-week high.

IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> climbed $5 to $150 3/4 after the company opened the barn door on a number of strategic initiatives, including working with SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> to turn out Java-based Lotus software and port Lotus products to Sun's Solaris platforms. Noticeably absent from the press releases today was any mention of OS/2 Warp, which still has some fans. IBM also announced an alliance with 3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> and CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %> to offer next-generation IP networks. For those who thought IBM really missed the boat in crucial segments of building the Internet and supplying the high-profile software for use on that medium, IBM's five-year outlook might look a little better today.

QUICK TAKES: SMITH'S FOOD & DRUG CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFD)") else Response.Write("(NYSE: SFD)") end if %> moved up $2 5/8 to $27 1/4 after reporting Q4 earnings per share (EPS) of $0.48, beating estimates of $0.35... Following an SEC filing showing that Fidelity Investments owns 5.8% of the Russian cellular communications company, VIMPEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VIP)") else Response.Write("(NYSE: VIP)") end if %> gained $1 7/8 to $36 1/8... Oil and gas company ORYX ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ORX)") else Response.Write("(NYSE: ORX)") end if %> stepped up $1 1/2 to $24 3/8 after announcing it will increase its development expenditures 30% and that it expects production of 75 million barrels of oil in 1997... ASYST TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASYT)") else Response.Write("(Nasdaq: ASYT)") end if %> rose $1 5/8 to $24 1/2 after reporting Q3 earnings and announcing the closure of its Asyst Automation unit... Networking products value-added-reseller POMEROY COMPUTER RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMRY)") else Response.Write("(Nasdaq: PMRY)") end if %> was up $4 to $31 3/4 after announcing a $15 million contract yesterday... MIDCONN BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIDC)") else Response.Write("(Nasdaq: MIDC)") end if %> gained $3 1/2 to $23 1/2 after accepting a buyout offer from EAGLE FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGFC)") else Response.Write("(Nasdaq: EGFC)") end if %>... INTEGRATED PROCESS EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IPEC)") else Response.Write("(Nasdaq: IPEC)") end if %> rose $1 5/8 to $25 5/8 after the semiconductor equipment company reported EPS from continuing operations of $0.09... Generic pharmaceutical BARR LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRL)") else Response.Write("(AMEX: BRL)") end if %> gained $2 to $32 5/8 after announcing FDA approval for its Demerol substitute... PHYSIO-CONTROL INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHYS)") else Response.Write("(Nasdaq: PHYS)") end if %> rose $3 1/8 to $23 after the cardiac devices company reported Q4 EPS of $0.29, ahead of estimates of $0.28 per share.

GOATS

PECO ENERGY CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PE)") else Response.Write("(NYSE: PE)") end if %> lost $1 3/8 to $22 5/8 after the electric and gas utility reported fourth quarter EPS of $0.51, below analysts' estimates of $0.55. Analysts believe that the company will have have a difficult time growing earnings over the coming two years and that the company's $1.80 yearly dividend might be in jeopardy. Based on this quarter's earnings, the dividend payout-to-earnings ratio was 88%, about 21% higher than Value Line's universe of eastern electric utility companies. The company's chairman says the dividend is not in danger -- a dividend cut is the kiss of death for valuations in the utility industry. As it stands now, the PECO's yield (dividend payout divided by price-per-share ) is 7.96%, at the high end of the utility universe.

Temporary help agency WESTERN STAFF RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSTF)") else Response.Write("(Nasdaq: WSTF)") end if %> lost $2 1/4 to $8 after Prudential Securities cut its rating on the company to "hold" from "buy" this morning. The company's price-to-earnings (P/E) ratio of 11 evidently doesn't provide the downside cushion that such a low P/E might for other companies. In contrast to ROBERT HALF INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHI)") else Response.Write("(NYSE: RHI)") end if %>, which reported earnings yesterday, Western Staff looks like a prime candidate for earnings erosion since it deals in less specialized segments such as medical staffing and light manufacturing. How do some of the temping firms sit after a few months of their own bear market? Western Staff is valued at 7.75 times 1997 estimates, OLSTEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> at 13.4 times, CORESTAFF <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSTF)") else Response.Write("(Nasdaq: CSTF)") end if %> at 27 times, and ACCUSTAFF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASI)") else Response.Write("(NYSE: ASI)") end if %> at 26 times. Earnings downgrades ahoy?

QUICK CUTS: Medical device maker KENSEY NASH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KNSY)") else Response.Write("(Nasdaq: KNSY)") end if %> lost $3 to $11 7/8 after announcing a voluntary product recall... CHICAGO MINIATURE LAMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHML)") else Response.Write("(Nasdaq: CHML)") end if %> declined another $4 1/4 to $21 1/4 after yesterday's earnings disappointment... Networker ANCOR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANCR)") else Response.Write("(Nasdaq: ANCR)") end if %> fell $3 9/16 to $9 15/16 after announcing that it lost an important contract... MARCAM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAM)") else Response.Write("(Nasdaq: MCAM)") end if %> lost $1 to $14 after the enterprise software company reported continued losses... Financial software company INTUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> fell $2 7/8 to $28 after completing the sale of its transaction processing unit to CHECKFREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKFR)") else Response.Write("(Nasdaq: CKFR)") end if %>... COGNEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGNX)") else Response.Write("(Nasdaq: CGNX)") end if %> lost $2 1/4 to $18 after the machine vision systems company reported Q4 EPS of $0.14... Brokerage/investment bankers HAMBRECHT & QUIST GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMQ)") else Response.Write("(NYSE: HMQ)") end if %> fell $1 1/2 to $23 3/4 after reporting Q1 EPS of $0.62 vs. estimates of $0.60... OLYMPIC FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> slid $1 to $16 7/8 after the automobile financing firm reported Q4 EPS of $0.45, three cents shy of estimates.

FOOL ON THE HILL
An Investment Opinion by MF Templar

See? Phone!

How can you look beyond the excitement surrounding a new product announcement and discern the actual economic viability of the company behind the product? C-PHONE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CFON)") else Response.Write("(Nasdaq: CFON)") end if %> presents us with this difficult investment question today. Shares of the videoconferencing equipment developer rose $4 3/4 to $13 3/4 after the firm reported that it had completed assembling a network of manufacturer's representative organizations that will act as a sales force for its recently announced C-Phone home video phone. Investors took the formation of a sales organization as a sign that the company would actually move beyond development and into the manufacturing and sales of its new product.

The C-Phone home video phone debuted on January 8th, causing the stock to jump from $4 1/2 to $7 in hectic trading. The system allows consumers to participate in television quality video telephone calls using a self-contained television "Set-Top Box" that works via wireless remote control and a microphone. The system can be hooked up to any standard television set and is configured using a number of on-screen text menus. The product retails for $349.95 plus monthly connection fees of $9.95 to $19.95, and includes a high-speed digital camera, a 33.6K modem and all the necessary subsystems to make the thing function. Both parties using the C-Phone system need to have it hooked up to their televisions in order to make it work.

Excitement about the product continued to explode the day after it was announced, with C-Phone shares trading up to $12 1/4 on more than 100 times its average daily volume. Two trading days later the stock hit $19 intra-day and then began to collapse, driven to the $9 range by concerns over the company's ability to bring the product to market. With trailing sales of $1.8 million, a trailing loss of $2.9 million and limited resources on the balance sheet, the company was clearly no MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>. Estimating that it was only six to twelve months ahead of the competition, the task of getting its product into stores in high volumes with no designated manufacturing or distributing partner other than someone to slap together the chipsets loomed large.

Looking at valuations relative to trailing financials is a project certain to raise skepticism in even the most stalwart venture capitalist. C-Phone currently has a market capitalization of $57.2 million, roughly 31.7 times its trailing twelve month sales. The promise C-Phone holds is due to its new product, proponents argue -- what is in the past is in the past. However, even assuming the success of the home video phone system, looking at the numbers is certain to raise some red flags. The first thing that should worry investors is the flat-fee network C-Phone needs to have in place in order to make the video system function. AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> has certainly proven unlimited access results in detrimental logjams on the demand side.

The actual desk-top units will probably sport margins in the 10% range -- pretty good for a commoditized electronic product where competition is six to twelve months away. My assumption is that C-Phone's strategy is the classic "razor and blade" approach: sell people the unit and make the money on the service. Problems with implementing the service aside, the company would need to sell about 860,000 of the units at 10% margins to break-even given its current cost structure. While the idea of videoconferencing in the home certainly seems attractive, when you get to the concrete notion of users paying additional fees for the pleasure of seeing one another, you have to wonder whether or not this will necessarily translate into big bucks for C-Phone.

CONFERENCE CALLS

01/28/97 (Tuesday)
IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>
(800) 633-8284 (reservation #2219792) -- replay

01/28/97 (Tuesday)
APPLIED DIGITAL ACCESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAX)") else Response.Write("(Nasdaq: ADAX)") end if %>
(402) 220-4850 -- replay

01/28/97 (Tuesday)
HILTON/ITT MERGER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT, ITT)") else Response.Write("(NYSE: HLT, ITT)") end if %>
1-800-642-1687 (reservation # 222615) -- replay avail. 1/28, 11AM EST thru 1/29

01/29/97 (Wednesday)
FORD MOTOR COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
(703) 736-7226 -- replay on 1/30 @ 2:00 p.m. EST only

01/29/97 (Wednesday)
PRIME HOSPITALITY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDQ)") else Response.Write("(NYSE: PDQ)") end if %>
(800) 642-1687 (access code: 199532) -- replay through 2/5

01/29/97 (Wednesday)
ARVIN INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARV)") else Response.Write("(NYSE: ARV)") end if %>
(800) 633-8284 (reservation # 2331673) -- replay avail thru 2/5

01/29/97 (Wednesday)
CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %>
(800) 642-1687 -- replay from 12:30 p.m. EST on 1/29 through midnight on 1/30

01/29/97 (Wednesday)
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(Global Enterprise Mgmt Solution Announcement)
(888) 243-0816 -- replay avail 1/29 @ 2:30 PM EST thru 8:00 PM EST on 1/30

01/29/97 (Wednesday)
SEAGRAM LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %>
(800) 394-6920 -- replay thru 9 PM EST on 1/31

HARLEY DAVIDSON (NYSE: HDI)
(402) 222-9913

ATLANTIC COAST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %>
replay avail thru 4:30 PM EST on 1/29
(800) 633-8284 (reservation # 2257486)

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

CONTROL DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDAT)") else Response.Write("(Nasdaq: CDAT)") end if %>
(402) 220-1003 -- replay thru 2/6

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Editing

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