The Evening News - Wednesday, January 29, 1997

BARR LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRL)") else Response.Write("(AMEX: BRL)") end if %> gained $1 5/8 to 34 1/4 after the generic drug company announced the availability of its 50 milligram-strength Demerol equivalent. The drug is a common painkiller for moderate to severe pain and is prescribed around the world. Any news of this type is a positive for Barr, since the company relied upon the distribution of a breast-cancer treatment, Tamoxifen Citrate, for 75% of its sales last quarter. Despite the danger inherent in relying upon low-margin distribution sales, investors have bid up Barr from its summer low of $22 3/8. Now trading at 58 times annualized earnings, the idea is that Barr can get its operating margin somewhere north of 15%. On yearly sales of $250 million+, that would bring the P/E down to the 20s range, in-line with the rest of the industry.

Disk drive maker QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> rose $3 1/4 to $36 3/8 after reporting Q3 earnings per share (EPS) of $0.71, handily beating estimates of $0.52. The second-largest independent disk drive maker behind SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %>, Quantum has been hurt by its association with APPLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>, and has also had a tough time handling its own high-end manufacturing operations in Malaysia. Having sold that plant to IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>, the company turned over its high-end manufacturing to MKE of Japan, which helped to grow gross margin to 17.3% of sales from 9.4% of sales in the third quarter last year. The stock is now trading close to parity with its peers, at 10 times 1998 estimates. Seagate now trades at 10.7 times 1998 estimates, and WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> is priced at 11 times 1998 estimates.

CALGENE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CGNE)") else Response.Write("(Nasdaq: CGNE)") end if %> rose $1 31/32 to $7 15/32 as MONSANTO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> offered $7.25 per share in cash for the approximately 45% of the biotech company it doesn't already own. Calgene is best known for its FLAVR SAVR tomato, which still freaks people out due to the fact that the company has pushed a few buttons on the tomato's genetic code. Monsanto is far from freaked out, however, seeing potential in the value of the company's current products as well as its accumulated R&D. The buyout offer comes two months after Monsanto purchased 6.25 million shares at $8 when the publicly traded price the day before the offer was below $5.

QUICK TAKES: AMERISAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASF)") else Response.Write("(NYSE: ASF)") end if %> rose $5 to $22 from its IPO price amidst a market not entirely constructive for staffing firms... Voice mail firm APPLIED VOICE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVTC)") else Response.Write("(Nasdaq: AVTC)") end if %> rose $4 1/8 to $17 7/8 on reporting a 43% increase in Q4 EPS of $0.33... LEARNING TREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTRE)") else Response.Write("(Nasdaq: LTRE)") end if %> rose $6 to $36 after the continuing education company reported Q1 EPS of $0.19 on a 55% increase in quarterly revenues... Data storage maker CIPRICO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPCI)") else Response.Write("(Nasdaq: CPCI)") end if %> gained $2 1/8 to $15 after reporting Q1 EPS of $0.21, beating estimates of $0.18... SOFTWARE ARTISTRY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWRT)") else Response.Write("(Nasdaq: SWRT)") end if %> added $1 1/8 to $9 1/2 after the enterprise software company reported Q4 EPS of $0.23, three cents ahead of estimates... DOW JONES & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJ)") else Response.Write("(NYSE: DJ)") end if %> gained $3 1/4 to $38 3/4 as investors continue to anticipate a restructuring... Aircraft component overhauler TRIUMPH GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TGI)") else Response.Write("(NYSE: TGI)") end if %> rose $2 1/4 to $31 on reporting EPS from continuing operations of $0.40, better than double estimates... CUMMINS ENGINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUM)") else Response.Write("(NYSE: CUM)") end if %> jumped $4 5/8 to $55 after reporting Q4 EPS of $1.03, standing up estimates of $0.86... Pharmaceutical and medical products distributor AMERISOURCE HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAS)") else Response.Write("(NYSE: AAS)") end if %> rose $3 1/4 to $47 3/4 after reporting a 26% increase in Q1 EPS on a 36% increase in revenues... REEBOK INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK)") else Response.Write("(NYSE: RBK)") end if %> picked up $2 7/8 to $45 1/2 after extending its contract with golfer Greg Norman... Graphics products company AVERY DENNISON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVY)") else Response.Write("(NYSE: AVY)") end if %> rose $2 1/8 to $35 1/2 on reporting a 31% increase in Q4 EPS... Mainframe and enterprise storage company EMC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> added $2 1/2 to $39 1/8 as Q4 EPS beat analysts' estimates... Shipbuilder AVONDALE INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVDL)") else Response.Write("(Nasdaq: AVDL)") end if %> climbed $2 to $22 3/4 after reporting estimate-crushing EPS of $0.43 for its fourth quarter.

BRINKER INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EAT)") else Response.Write("(NYSE: EAT)") end if %> splashed down for a $4 1/4 loss to finish at $11 after the Chili's and Macroni Grill restaurant company reported lower-than-expected Q2 earnings. EPS of $0.15 fell well below the mean analysts' estimate of $0.20. The poor results took everyone by surprise, resulting in a number of downgrades, including one unusual "sell" recommendation. Additionally, the departure of the company's chief operating officer and four vice-presidents made analysts suspect that something is seriously wrong at company and that the earnings shortfall was not just due to higher labor and food costs. Brinker's second fiscal quarter is its slowest seasonal quarter, though, and there's no disputing that the labor market is tight and that wages have been rising due to government mandates. At least someone thinks Brinker is a good buy today -- the company's board of directors authorized a $150 million share buyback.

Direct satellite equipment company ECHOSTAR COMMUNICATIONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DISH)") else Response.Write("(Nasdaq: DISH)") end if %> dropped $2 3/8 to $15 3/8 after the Denver Post ran a story this morning discussing changing perceptions regarding the company and the industry. The crux of the story is that sales didn't live up to expectations for the holiday season, which may not be a surprise since the bar had been set pretty high for one of the hottest-selling consumer devices in history. Though prices of the hardware have come down, the article says they haven't come down quickly enough for Echostar or the industry to achieve critical volumes. Echostar is not alone in experiencing a depressed stock price, U.S. SATELLITE BROADCASTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USSB)") else Response.Write("(Nasdaq: USSB)") end if %> down from a yearly high of $38 1/2 to $10 1/8, and TCI SATELLITE ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSATA)") else Response.Write("(Nasdaq: TSATA)") end if %> has fallen from $19 to $8 5/8.

QUICK CUTS: APPLIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APLX)") else Response.Write("(Nasdaq: APLX)") end if %> fell $5 3/4 to $17 as Q4 EPS growth of 31% didn't hit the target for some investors... ACTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTL)") else Response.Write("(Nasdaq: ACTL)") end if %> lost $5 1/2 to $20 after reporting a sequential decline in unit shipments of a critical product line... Chronic illness services company CHRONIMED INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHMD)") else Response.Write("(Nasdaq: CHMD)") end if %> lost $2 3/4 to $12 1/4 after reporting a 17% increase in EPS on a 26% increase in revenues... Auto finance company JAYHAWK ACCEPTANCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JACC)") else Response.Write("(Nasdaq: JACC)") end if %> had a little fender-bender, losing $1 5/8 to $8 1/8 on the Mercury Finance news (see below), as did OLYMPIC FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %>, which fell $2 to $14 7/8... Ion implant systems company GENUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GGNS)") else Response.Write("(Nasdaq: GGNS)") end if %> lost $1 to $5 7/8 after reporting a quarterly loss of $2.3 million... PROTOCOL SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCOL)") else Response.Write("(Nasdaq: PCOL)") end if %> lost $1 1/2 to $9 7/8 on reporting lower-than-expected Q4 results and getting hit with an Alex. Brown & Sons downgrade... Computer systems integrator MICROAGE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICA)") else Response.Write("(Nasdaq: MICA)") end if %> lost $1 3/4 to $12 3/4 on announcing the acquisition of a related company with $60 million in revenues... LUXOTTICA GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUX)") else Response.Write("(NYSE: LUX)") end if %> fell $7 3/8 to $56 1/4 as the eyewear company reported a 14% increase in earnings per share.

The revelation that the books at MERCURY FINANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFN)") else Response.Write("(NYSE: MFN)") end if %> had been cooked by a corporate controller now on the lam shattered the stock this afternoon. Although the second-hand automobile lender had its stock halted before the market opened this morning and did not trade on the New York Exchange, news sources report that trades on the secondary market were crossing as low as $4 -- a huge drop from the $14 7/8 it closed at yesterday. The news is pretty sketchy at this point, complicated by the fact that the controller who was allegedly behind the financial legerdemain has been missing since Thursday.

The story begins with accounting firm KPMG Peat Marwick going over Mercury's books while performing its regular annual audit. With extra scrutiny on the books due to a pending deal with the BANK OF BOSTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKB)") else Response.Write("(NYSE: BKB)") end if %>, apparently KPMG or Bank of Boston-auditor SALOMON BROTHERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SB)") else Response.Write("(NYSE: SB)") end if %> found some problems. While this was coming to light, senior vice president and controller James A. Doyle informed the company that he would not be in on Friday due to "personal business." A spokesperson at Mercury stated that the controller has apparently "disappeared" and a search for the errant finance fellow.

Until today, Mecury Finance was the largest independent provider of used-car loans in the U.S. through its network of 275 offices and 5,000 participating dealers. Mercury enriched its sub-prime car lending business by packaging credit, health, and life insurance products along with the car loans. The company has been praised by analysts for maintaining its 20% to 25% rate of earnings growth in the face of increased competition from smaller companies. These other sub-prime lenders got a boost in 1994 and 1995 when a number of them came public, snatching up tons of cash and thinning margins across the industry.

Although it had previously appeared that Mercury had escaped this onslaught unscathed, it now appears that profits at the company have actually been decreasing for the last three years. The company is restating earnings for the last three years and has suddenly found that it is in violation of debt pact covenants with various lenders as a result. Particularly disturbing is the fact that profits have been shrinking for the last three years and no investor in the company had any clue what was going on.

              Previous       Current (restated)
Fiscal '93    $0.37 EPS      $0.37 EPS
Fiscal '94    $0.49 EPS      $0.47 EPS
Fiscal '95    $0.57 EPS      $0.44 EPS
Fiscal '96    $0.70 EPS      $0.33 EPS

Investors eager to jump on the largest sub-prime lender at a time of weakness might want to think twice. Often the first restatement is far from the final restatement. The damage to the balance sheet and loan quality at the company that has occured over the past three years is completely unknown. Many times in the past when a company has cooked the books for a sustained period of time it has led to a significant period of underperformance, if not a full-blown bankruptcy or default. Investors in 1994 who owned WOOLWORTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> when accounting irregularities surfaced owned a stock that went from $30 to $10 in the space of two years with a permanent end to its status as a dividend-paying company. At this time, it is very difficult to assess the value of Mercury Financial without detailed knowledge of the company's financial situation. Investors should act accordingly.

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

3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>
replay through 2/4
(800) 633-8284 (reservation # 2198620)

COMPUTER HORIZONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRZ)") else Response.Write("(Nasdaq: CHRZ)") end if %>
replay available for 72 hrs. beginning at noon EST on 1/29
(800) 938-0931

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

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

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

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

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

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

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

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 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HDI)") else Response.Write("(NYSE: HDI)") end if %>
(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)

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

Iomega reported earnings last night, and the Fool has a summary of the conference call in Earnings Central. We'll also be holding a discussion of this latest Iomega announcement in the AOL Chat Cafe at 9pm ET. Look for the button to the event on the Fool mainscreen.

Today's Lunchtime News looks at software concern Applix. It was mashed this morning for over $5, after they missed earnings expectations by a penny.

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

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Heroes & Goats

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Editing